Markets have entered a corrective phase

Nifty showed a fair bit of volatility during last week wherein the index recovered in the first three trading sessions towards 18700, but it corrected sharply in the last two sessions and ended the week below 18300 with a weekly loss of over a percent. At the start of this week, we again witnessed recovery in Monday’s session wherein the index reclaimed 18400 at the close. 

Nifty registered its all-time high of 18888 on 1st December when the momentum readings got into its highly overbought territory. The market usually retraces from such an overbought zone and hence we witnessed some profit booking in the last couple of weeks. The Bank Nifty index outperformed the benchmark and kept rallying until its readings too reached the highly overbought zone. The overbought setups led to a sell-off on the weekly expiry day and finally, the banking index too has started its corrective phase. The global markets have not reacted much to the recent FED event and INR has depreciated in spite of the Dollar Index still hovering at lower levels. FII’s too have unwound their long positions in index futures due to which their ‘Long Short Ratio’ has declined from 76 percent on 1st December to around 55 percent now.  Now, the setups on the daily charts still are not much positive, and hence, we continue with our view that the markets have entered a corrective phase after posting highs on 1st December. But when some sector rotation takes place, there is a possibility of corrective phase turning to be a time-wise correction where rallies towards the resistances are sold into while declines towards supports witness buying interest. Hence, we do not expect a run-up rally in the short term on the indices and hence, upmove towards resistances should be used to lighten up trading longs. 

The immediate resistances for Nifty are seen in the range of 18470-18500 followed by 18600 levels. On the flip side, 18250 and 18134 are the near-term supports for the index.