The broader market Nifty 50 index has taken a serious hit in today’s session, falling over 770 points to 23,950, by 12:40 PM IST, which is the lowest level since 28 June 2024. The primary reason for today’s sell-off is renewed concerns over a slowdown in the US market.
However, keeping the global concerns aside, the index had already been showing signs of being overbought, with the RSI (daily, 14) depicting a reading of 73.5, just 2 sessions ago.
Now as the index has corrected over 1,150 points from the all-time high, what should traders do? Till now the broader trend was extremely positive despite being in the overbought territory for quite some time but today’s fall below the nearest support of 24,074.
This move has changed the trajectory of the trend, from positive to slightly negative. The stronger bear trend will likely emerge when the index makes a lower high, not breaching the current all-time high and then falling below the most recent low. This will mark the lower low and lower high formation - a classic downtrend picture.
Now as the bullish picture is fading away, traders can position themselves for short opportunities. The market is now turning into a sell-on-rise one and bounces from hereon should be faded by traders, at least till the index does not start to make a higher high and higher low (uptrend) formation.
Now, the downside potential is there despite a heavy selloff today. The next support on the daily chart is present at around 23,350, depicting a 600-point risk. However, waiting for a bounce for short selling might be a better idea than hitting the ball right off the bat, primarily from the risk-to-reward perspective.
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