As Diwali 2024 approaches, traders and investors are gearing up for the traditional practice of Muhurat Trading . However, Emkay Global’s Kapil Shah is urging a cautious approach this year, warning that the Nifty 50 index may face potential declines, possibly sliding below the critical level of 24,900. With recent market trends prompting concern, it is vital for participants to stay vigilant.
Caution During Diwali 2024
Shah emphasizes the importance of caution for traders and investors during Diwali 2024, highlighting the risks associated with potential bearish trends in the Nifty 50 index. His strategic advice is to actively book profits during upward movements, ensuring that investors do not get caught in a declining market.
Nifty 50’s Recent Performance
The Nifty 50 has seen quite a rollercoaster ride this year, having reached a historic high of 26,216 on September 26, 2024. However, the sentiment has soured since mid-October, with the index witnessing a continuous decline of approximately 7%, reflecting significant market pressure without any signs of recovery.
Market Trends and Patterns
Several key market trends are at play, warranting Shah’s caution:
- Uptrend Time Cycle: Historically, major uptrends for the Nifty 50 last between 26 to 56 months, and the current rally has reached 54 months, indicating its time-wise maturity.
- Bearish Engulfing Candle: Seen on the Nifty 50 monthly chart, this pattern indicates bearish implications, historically linked to market tops, often resulting in selling pressure over the subsequent month.
- “Spiky M” Pattern Formation: This pattern, observed since 2008, shows potential for significant market response if it develops fully over a minimum period of 4 months.
- Short Term Structure Shifts: Notably, the markets are exhibiting a change in correction profiles, transitioning from a 5% decline over 7-9 days to a 6.5% drop over 17 trading sessions. Additionally, bearish patterns like the Head & Shoulders and Inverted Flag are emerging, signaling further declines.
Sector Seasonality Insights
Considering the recurring seasonality observed across various sectors, Shah stresses the importance of technical verification for strategic sector rotation based on historical performance metrics.
Projected Index Movements
Shah foresees a negative bias for the Nifty 50 below the 24,900 level, with potential downside targets ranging from 24,000 to 23,800. If the index breaches the latter level, it could pave the way for further declines, potentially down to the 22,800-21,800 range. Given these projections, prudence in trading strategies is essential.
Market Influences in Samvat 2081
Multiple global and domestic factors will likely influence market behavior throughout the Samvat 2081 financial year. Key considerations include:
- Global Economic Conditions: The worldwide economic landscape plays a pivotal role in shaping market dynamics.
- Upcoming Union Elections: These elections could significantly impact market sentiments and government policies.
- Union Budget: Anticipated budgetary measures will affect investor confidence and expenditure patterns.
- China’s Economic Recovery: China’s recovery trajectory may influence global investment and trade flows.
- Crude Oil Price Fluctuations: Volatility in crude oil prices can impact inflation and economic growth.
- Investment Inflows: The level of foreign and domestic investment inflows will also shape market trends.
Conclusion
In summary, the cautious approach recommended by Kapil Shah highlights the uncertainty surrounding the Nifty 50 index as it approaches critical support levels. Emphasizing a strategy of profit-taking during market upswings can safeguard traders and investors against potential declines.
FAQ
- What is Caution Muhurat Trading? – It refers to the careful trading approach advised by experts during the auspicious period of Muhurat trading.
- What does a Bearish Engulfing Candle signify? – This pattern typically indicates a potential reversal of price movements, often appearing at market tops.
- How can sector seasonality impact trading strategies? – Recognizing seasonal trends in sectors can help traders rotate into more promising investments as market conditions shift.
