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Markets succumbed to selling pressure on Friday with prices opening lower and thereafter closing at the lowest point of the day by breaching a low of 19253.60. This breach has confirmed the start of Wave (3) of impulse degree which would have a minimum target of 17,657 and can even extend to 16,463.

From a trading perspective, this is an ideal time for opening short positions in Nifty September futures with stop loss placed at 19,565. The massive selling of FII of more than Rs 4500 crores on Friday also corroborates to bearish trend in markets. With the breakdown in spread data of Nifty 50- Nifty 500, we may see Nifty 50-based derivatives and ETFs being used to create massive short positions in international markets for hedging exposure in broader markets.

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Nifty opened with a gap up on Thursday but selling in the second half in financials stocks forced Nifty to end in the negative terrain turning the entire day into a bearish engulfing line on candlestick charts.

As reversal has occurred after retracing 38.2% of the down move, it may signify end of corrective up move of Wave 2 and is likely to be followed by Wave 3 in the coming days. Applying for 261.8 pct Fibonacci extension, the immediate price target falls in range of 17,500-17,700 which may come in line with the movement in global markets. The global markets like Dow Jones has already have opened wider cracks below 34,300 which may be a sign of Global Warning.

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Markets managed to post gains on Wednesday on the back of support from Bank Nifty which rallied more than 1% on the back of a drop in USDINR and lower Brent crude prices. However, the setup for Nifty still calls for caution and resembles a similar situation that occurred on Sep-Oct 18. 

The price setup in Nifty 50 indicates that Wave (3) should resume after the current up move which can fall in a trajectory of either 16,345 or 17,539. The S&P 500 equal Weighted Index has also a formed larger Bearish Triangle which also justifies for 10-15 pct quick downside in the near term.  The resistance for today’s trading session is seen at 19,535 which turns out to 38.2 pct retracement of the entire down move.

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Market action may suggest “All is well” based on the performance of “B” Group stocks movement in the past few days. But underperformance in Nifty 50 indicates a sign of a major warning. The Indian markets have a history to replicate movement in US Banks with a lag effect of 15 days and some of the giant US Banks namely Goldman Sachs are already showing signs of a major breakdown.

The weekly spread chart of the Nifty 50-NIfty 500 Index also collaborates with this warning, with price data showing aggressive shorting in Nifty futures for hedging broader portfolios. A Breakdown in the Spread of the Nifty 50-NIfty 500 Index would trigger algo selling in Indian markets which may force Nifty 50 well below 17,000 in a quick span of time. The crucial levels to watch in Nifty futures would be 19,265 for opening short positions.

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The short-term charts suggest that selling pressure in markets could be reinforced on a move below 65,175 in Sensex and the next leg of the down leg could begin from the Banking sector. On the upside, the major hurdle is seen at 19,483 which turns out to be the previous week’s high.

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Markets tend to remain strong as long they hold comfortably above the previous highs, while below the same - turns the recent breakout void. In Nifty terms, we expect an immediate target of 18,200 on breach of 19,265 in Nifty futures.

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The breakout in India VIX above 11.5 along with USDINR sustenance above 83 in international exchanges poses major threat to the India markets. The rise in USDINR would provide early indications about unwinding in long positions in Indian offshore indices like BNY Mellon INDIA DR Index which currently showing signs of reversal and thereafter breakdown from bearish running triangle with downside potential of 34%.

The outlook for market remains bearish with spread of Nifty 50- Nifty 500 breaching key support. A breach of support would indicate more addition of short positions in Index futures in the coming days in order to hedge their existing portfolio. We expect markets to face sudden jerk on breach of the recent low of 19296 with immediate target seen at 18200.

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The Dollex 30 i.e., Sensex in USD terms has already confirmed a lower low, which opens a case for a 7-8% correction in immediate terms. In Sensex terms, critical breakdown levels are placed at 65174 below which, it would confirm start of impulse degree Wave 3.

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The market ended with marginal losses after failure to cross above 19600 while India VIX confirmed a breakout after closing above the 11% mark. Both USDINR and Brent Crude rise pose a major risk to the Indian markets with Brent Crude positioned to hit USD 100 a bbl in the next few days.

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