At least, now no one can say the Nifty is not reflecting the broader market decline. Finally, last week, the Nifty too joined the crash course, in full force. The index shed 614 points, or 5.50 per cent, during the week. While the index’s initial downtrend was led by usual suspects like financials, by mid-week, information technology stocks and other large diversified stocks too signed up for the slimming programme. By the end of the week, oil and energy sector stocks also got into a rigorous fat burning exercise.

It is now the turn of the bears to get fattened up. As the bulls had fled the scene, it looks the bears are in a mood to take full control of the market for the rest of the calendar year.

It is not the first time that such rapid fire correction has taken place. It had happened in the past, too. However, this time, the correction has taken with it the sector that has been holding the market. The best of the stocks have been battered, so the confidence has also been shaken.

But it may be noted that some of the bruised large-cap stocks, which moved up sharply this year, were the ones which had taken the Nifty to new highs in August. A collateral damage of this will be on exchange traded funds now. Some ETFs with a history of outperforming the market may now come up for selling.

The liquidity remains weak. Though the government quickly moved in and handed over IL&FS to a new management and thus brought some relief to the financial market, bond yields have only moved up even after the government announcing a reduced borrowing programme. This clearly indicates that liquidity in the private bond market is too tight.

Until liquidity improves for them, NBFCs will be forced to focus on managing their short-term liability side. Till then financial stocks, especially of the private sector, would remain under pressure. The Reserve Bank does not like liquidity to remain under pressure. To that extent, its decision  not to raise policy rates is welcomed.

Questions are being raised whether the RBI has done the right thing by holding the rate, given its possible adverse impact on the domestic currency. But it should be appreciated that had the central bank shown any signs of panic, that would have worsened the situation for the market.

Oil prices continued to inch up in the international market, which is at the root of the problem for India, since the rise in crude oil prices is taking the Indian currency down. This creates a viscious cycle and would settle only when oil prices come down for good.

What is surprising is that despite the rise in oil prices, shale production, which was supposed to become a counter to oil prices, has not seen any significant increase, which means that either shale producers do not think oil prices are going to stay at elevated levels or they are not ready to commit fresh investment for restarting their wells.

The US treasury bond yields are going up at a fast clip, surprising many analysts. That is a risk to emerging markets. Traders have to keep an eye on this.

Oscillator charts are in the sell mode and many have reached close to extreme oversold territory, indicating that a short-covering bounce is overdue. The moving average convergence/divergence (MACD) on the daily charts is placed in the sell mode and is residing close to a level from which it tends to reverse. But on the weekly chart of this oscillator, the bears have the upper hand as a sell signal has just appeared on those and it is still far away from its support giving levels.

The extreme short-term indicators are placed in oversold territory but a worrisome feature for the bulls is that these have started moving in sideways direction, which is a bearish indication.

While the price-wise damage to the market would get soon over, what would trouble the market is timewise correction, which could take longer to reverse.

Coming to support and resistance zones, the Nifty has broken its 200-day moving average (DMA) and that is going to be a trouble point for it to make any attempt to move upward. So, the most important resistance would come in the range of 10,700 to 10,800.

The first support to the Nifty comes close to the 10,150 mark, which, it seems, would be broken in the first seeesion itself, at least on an intraday basis. The next support level would depend on the pace at which the Nifty moves below 10,000. If that happens during the close of the session, that would mean that another 5 per cent pain is left for the bulls to bear. But given that a short-covering bounce is overdue, traders should not try to take any adventurous short position.

rajivnagpal@mydigitalfc.com