Market Overview

Today, the market opened about 1.5% higher, thanks to the Nikkei index jumping 11% at the start of the morning. This surge in Japan led to a rise in US futures and Gift Nifty futures, causing a significant bounce in the Nifty at the open. However, Nifty couldn’t sustain the gains and closed lower than yesterday, dashing hopes of a quick recovery. Now, we wait to see how long this consolidation will last.

Is this the beginning of a downward trend? It seems likely. Market corrections, whether time-based or percentage-based, were expected and might have started now. This could be a temporary downtrend before a recovery, or it could be a more extended decline. History shows that markets can recover strongly after such episodes, and we’ll explore that in today’s second segment.

This morning’s gap up was promising, but the market closed at a month and a half low, indicating potential further downtrends. Whether this lasts for days, weeks, or months is uncertain, but strong bull runs often follow good corrections. We must be mentally prepared for a potentially long, painful journey if the trend continues downwards.

Nifty Next 50

The Nifty Junior index broke down like Nifty, with a significant -0.92% move.

Nifty Mid and Small Cap

Mid caps and small caps held up slightly better, down 0.6% and 0.39%, respectively, providing some hope for the broader market.

Nifty Bank Overview

The immediate fall was followed by a dead cat bounce today, but Nifty Bank didn’t clear yesterday’s high, closing at a new recent low with a -0.69% move.

Nifty Heatmap

In the heat map, you have some greens with FMCG positive, IT stocks positive, Reliance making some gains, and JSW making some gains. But other than that, most of it was red. State Bank of India, HDFC Bank, SBI Life, HDFC Life, Bharti Airtel, all down but not as much as one could have expected from yesterday. But of course, the gains at the start of the day were all wiped out.

PSUs were more hit today. PFC, REC, IRFC, IOC, HAL, BEL, all going down. Stocks like VBL, Marico, Zomato all taking some hits today. Torrent Pharma, D-Mart were some of the names that stood out on the green side.

Sectoral Overview

In terms of sectoral trends, PSU banks were the worst hit, down 1.3%. Public sector enterprise stocks down 1.2%. Mostly, what happens whenever a market is falling is the place where people have the most gains will, in the first leg down, get hit the most. That’s what’s happening; PSU banks and public sector enterprises probably had the most gains recently, and they are down the most. Real estate, which had the most gains and was almost oversold till yesterday, saw some bounce at 0.8%. IT also saw some half a percent bounce. So, no place to hide really, but it kind of consolidated there near yesterday’s close.

PSU banks, as you can see, are now near the election day low close. Not a very good sign. This looks like four or five months of distribution, and if it breaks down, then some hell will break loose on the downside.

Sectors of the Day

Nifty PSE Index

Public sector enterprise stocks also have lost the election day high, a psychological point for most charts, and are now very near the previous lows at around 10,900. So, this is also looking a bit precarious.

Stocks of the Day

Symphony

In terms of stocks, Symphony was one stock which really stood out, clocking 18.8%. Despite the last two sessions, the stock didn’t fall at all. Relative strength is something you should look out for in stocks that are inherently strong and may buck the downtrend in the market.

Story of the Day

Now, to the topic of the day: is this the beginning of a downtrend? I’m going to show you some examples. This is an hourly, sorry, a 15-minute chart. Yesterday’s collapse in the second half of the day was followed by some recovery attempts. Today morning was sort of a dead cat bounce, meaning the market looked dead but then bounced out of nowhere, only to go dead again. This is exactly what happened today: down, down, down, then a bounce, then it died again. It may go up, but as of now, it is weak, lower than yesterday, and tantalizingly close to previous lows.

Past moves show many such situations where markets continue down with large bounces of 10-20%, then go down again. In 2022, similar scenarios played out. When such bounces happen in bear markets, they can ultimately collapse to new lows. These bounces often trap traders on the wrong foot, leading them to buy aggressively on each bounce, only for the market to continue its decline. It’s like a tennis ball thrown off a ten-story building, bouncing lower each time before settling.

For swing traders, a rough rule of thumb is to look for at least a two-day high before feeling confident about an upswing. Until a two-day high is crossed, confidence in the market’s rise is low. You can see market falls and bounces, but until a two-day high is cleared, the trend remains uncertain.

On a longer-term basis, observe where highs and lows are made. A sequence of lower highs and lower lows indicates a downtrend. Only when a new high and higher low are made can we consider a trend change. Looking at longer time frames, this pattern becomes clearer.

In 2022, the market was choppy from October 2021 to June-July 2023, almost 18 months of sideways movement. After consolidating, a breakout occurred. Now, we might see similar consolidation or further drops. Structurally, there’s no major problem until we hit around 22,600. The 21,300 election day low is a critical support level. We’re currently far from that, at 2,700 points away. If all hell breaks loose and we reach that point, it will be a real support test. If it breaks, the market story could be over for a significant time.

Did you panic and exit the markets, or did you consolidate your positions? Did you not bother about doing anything? Knowing and writing down how you reacted to each market move is very important. If you are reacting, panicking, write down these dates: market did this, and I did this. When you read your journal after six months, one year, two years, you will realize if you were making any mistakes and how you can improve your approach towards the market.

For instance, I am the least bothered about where the market goes each day, as long as it is not breaching major levels or exits. It’s practically noise. If it builds up in the next couple of weeks, nothing is lost. But if you panic and sell off positions against where they should have been sold, that’s the problem you need to address.

Be firm in your strategy. If you’re following one, stick to it. Don’t panic. Many of you may be first-timers or inexperienced with deep falls, but this current fall is just scratching the surface of a normal fall. Really, nothing significant has happened yet, so don’t feel distressed or panicked.

Even if markets do a 2008 again, where Nifty dropped 75% and mid caps and small caps also dropped 70%, how did we do from 2008 to 2024? That should give you confidence that regardless of what happens in the next five or ten years, we will make enormous money. Don’t worry about what you can’t control. Focus on your behavior and reactions, which require experience of several falls. It’s like falling down several times and learning that while you may bruise, the world doesn’t end. First-time falls may feel catastrophic, but experience teaches otherwise.

I want all of you to be mature investors and embrace market movements. The market needs to fall to build a base for the next rise, and you should be ready for that.