Market likely to witness selloff

Near-Term indicators on charts are pointing to further weakness in the market, with the Nifty yet to close above a crucial resistance level of 5,368 points (though it was tested last Wednesday). With global markets also ending lower on Friday, the market should see another round of sell-off.

Technically, the Nifty has support at 5,181 (10-day exponential moving average (EMA)). But the index, last week, moved below 5,181 twice, which can be treated as an early indication of another round of sell-off.

Further on the lower side, the Nifty has strong support at 5,052 (200-day simple moving average). A close below this level for more than two days can cause a major sell-off, and in that case the Nifty may test 4,803.6 (the previous bottom recorded on February 11) first and then could move down towards the panic bottom of 4,448.5, which recorded on January 22.

If the Nifty manages to close above 5,368, it can negate the downtrend in the short run, and can take the index towards 5,600 levels. The index will need a lot of support from heavyweights like Reliance Industries, ICICI Bank, ONGC and Bharti Airtel.

Reliance Industries is the lone counter with strong supports at the moment. But if the stock falls below the Rs 2,375-level, then it may find support only at Rs 2,304, because the 3-,9- and 18 simple moving average combination can give a sell signal.
Other heavyweights such as ONGC, Bharti Airtel, Wipro, ACC, Reliance Communication, Infosys Technologies, and Grasim are already trading below their respective 200-day moving averages. If there is another fall, these stocks may face a severe sell-off.

Stocks, which are trading very close to their 200-day simple moving average, are NTPC Rs 202.55 (200 DMA), Satyam Rs 431(200 DMA), Glaxo Rs 1,105 (200 DMA), ICICI Bank Rs 1,063 (200 DMA) and Unitech Rs 339 (200 DMA). In a sell-off, these stocks can be targeted by the bear operators and once these stocks fall below their support levels, a steep fall is expected.

And stocks, which are currently trading far from their 200-day moving averages, but may come closer to their respective 200-DMA in a fall, are Reliance Industries, SBI, Tata Steel, L&T and HDFC. So, investors should be careful before they commit to long positions at this stage.

Last Friday, major world markets were ended lower, with majority of the Indian ADRs (American Depository Receipts) are closing sharply lower. The interesting point to note is that except HDFC Bank, the rest of the ADRs closed below their respective 200-day moving averages, indicating further weakness in ADR markets. The 200-DMA for some of the ADRs are ICICI Bank $53.87, MTNL $7.9 and Tata Motors $18.02.

In case there is a rally, then Hindustan Unilever and Ranbaxy are the candidates for buying because their weekly technical indicators are showing a ‘buy’ signal. Shares such Maruti and Mahindra & Mahindra will face resistance at Rs 898 and Rs 731.70, respectively. Once these levels are breached, only then can these stocks lend support to the Nifty.
In Nifty futures, the March series were trading with a huge discount of around 80 points, suggesting that market participants have taken short positions on index contracts in anticipation of a major correction, a view that is further supported by the buying in Nifty’s out-of-the-money put options. The rise in Nifty volatility and limited activity in stocks futures segment to frontline stocks are all pointing out weakness of the markets.

Via ET