Over past few weeks or rather few days there has been serious selloff seen in Midcap and Smallcap indices. Many have lost the perspective of how to react to such sudden and severe selling pressure.
During such times it is best to rely on technical analysis methods like Channel and Time cycles that provide some perspective on where can be a plausible positive reversal!
Below is the chart of Nifty along with Nifty Smallcap index. See yourself the diverged behaviour between the two indices. Nifty has managed to sustain above the lows of 9950 levels made on 23rd March 2018 but Smallcap index is now way lower than the levels seen during that time.
Nifty index and Nifty Smallcap index chart:
The above chart is self-explanatory. Post 2017, it is for the first time we are seeing a strong divergence between the main index and high beta sector. On one hand Nifty has rallied from the lows of 9950 and still near 10600 levels whereas NSE Smallcap index has shown a sharp decline and broke the earlier lows as well. There has been clear lack of interest in the Smallcap space and it is obvious given the valuations these stocks were demanding.
However, look at the channel of the smallcap index and it is now back towards the lower trendline support. It seems this index can form a low in a panic selloff we are seeing over past two days. If the selling does not stop here then there is going to be a very serious concern. So, I am optimistic that the worst might be over soon atleast in near term for few weeks.
The selloff has been sharp enough to ensure majority are trapped at higher levels without giving much time to exit. It is therefore important to use strict stoploss for any trades or investments to avoid getting stuck in such type of events which happens once in few years but is sufficient to eat up the profits of years!!!
In a nutshell, given that cycles are slowly reversing and Smallcap index is near the trendline support the selling in high beta stocks have to take a pause soon and we should see some consolidation for few weeks. The reversal can be equally strong and fast due to short squeeze. So, get ready to be against the crowd again and we will alert in our daily research report – The Financial Waves short term update when it is time to pull the trigger! Stay tuned!
Attend the training on Elliott wave, Neo wave and Time cycles and see how I was able to capture the major top near 11000, lows near 9950 and top again near 10930 levels. This is no coincidence but a practice of systematic and scientific methods. Learn yourself in the upcoming sessions on 21st and 22nd July 2018. Also avail access to free research reports under early bird offer! – Check here
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