Dalal Street week ahead: Sebi curbs likely to trigger adverse reactions

INSUBCONTINENT EXCLUSIVE:
The unabated meltdown of the equity markets continued this week as well, which saw Nifty plunge to the fresh weekly lows
Domestic equities traded in line with weak global setup and lost ground as rapidly as other global markets. Benchmark Nifty declined and
ended in the negative for the first four days of the week
Despite some short covering-led pullback, the headline index ended with a net weekly loss of 1,209 points, or 12.75 per cent
The currently weekly fall remains one of the largest in the absolute terms in the history of the Index. The market has got damaged
extensively on the technical front as of today
With the current weekly decline, Nifty has violated the over 10-year-long upward rising trend line, as it appears on the chart
While the index trades below all the moving averages, it is also set to negatively react to the new Sebi circular that came out after market
on Friday, aiming to curb market volatility. The India Volatility Index, INDIA VIX, surged by further 30.36 per cent to 67.10, and now it
trades very close to its lifetime high. The week ahead is likely to see a volatile and weak start, and the 9,000 and 9,315 levels will act
as key resistance for Nifty
The downside risks remain deep with key supports at 8,200 and 7,800 levels
Volatility is likely to stay ingrained in the sessions over the coming days. The weekly RSI stands at 16.13; it trades deeply oversold
The weekly RSI has marked a fresh 14-period low, which is a bearish indication, but it remains neutral and shows no divergence against the
price
The weekly MACD is bearish as it trades below the signal line
The PPO remains negative. Pattern analysis shows Nifty has violated the 11-year-old upward rising trend line
In the process, it has disrupted a decade-long uptrend. On technical ground, any pullback will face resistance at this trend line going
ahead
It has made creating shorts much tougher; in the process, it will also reduce the amount of short-covering that usually fuels a
pullback. This will result in lower volumes, lead to either margin pressure or liquidation of positions, and will also practically drive
retail index traders out of the market for a month. We strongly recommend staying away from the current setup, as it is nearly impossible to
apply technical readings in isolation on such a market
The market will not only react to the Sebi measures, but will remain highly responsive to weak global market setup as well
Medium and long-term portfolio investors may invest a small amount of total available funds at lower levels, but should strictly avoid any
represents over 95% of the free-float market-cap of all the listed stocks. The review showed the only way to approach such a weak and
volatile market is to go for defensive plays. Without going into microanalysis this week, as it would be pointless to do so, RRG charts
convey a clear message that defensive pockets like FMCG, consumption, pharma and realty are the only ones that are rotating favorably
Nifty pharma, consumption and IT indices are the only ones in the leading quadrant
Nifty FMCG is currently in the improving quadrant, but appears to steady while maintaining its relative momentum
These groups are likely to relatively outperform the broader market. It is best advised to stay away from the rest of the pockets in this
market. Important Note: RRGTM charts show the relative strength and momentum for a group of stocks
In the above chart, they show relative performance against Nifty500 Index (broader market) and should not be used directly as buy or sell
signals.(Milan Vaishnav, CMT, MSTA is a Consultant Technical Analyst and founder of Gemstone Equity Research - Advisory Services, Vadodara
He can be reached at milan.vaishnav@equityresearch.asia)