Some more downside before stability returns

The markets opened with a lower gap yesterday and proceeded to sink lower through the day. The benchmark indices lost over 4.5% as the markets factored in the rate hike by the RBI. The traded volumes were lower than the previous session as the retail players withdrew from the fray in a state of shock.

The market breadth was highly negative as the BSE and NSE combined figures were 1 : 3 and the capitalisation of the breadth was also negative.

The indices continued to slide till the fag end of the session and the market breadth remained negative. While these are indicators of weakness, a pullback dead cat bounce cannot be ruled out for Tuesday. Traders must note that these pullbacks are very unreliable and terminate without a warning, thereby trapping amateur traders. Since the 3792 support level advocated for Monday did not hold (Friday's note was composed without the CRR trigger factored in) and the index shaved off almost 5 % on an intraday basis, the likelihood of further nervousness and downsides cannot be ruled out in the coming few sessions. The 3555 double bottom support does not appear to be sacrosanct anymore and the fall below this threshold will confirm a fresh selling wave unfolding upon the markets.

The coming session will witness intraday levels of 3712 on upsides in case the markets bounce for any reason. Declines may violate the 3550 levels shortly.

The outlook for the markets today is that of absolute caution as the charts suggest some more downsides before stability returns. Stay away from bottom fishing for now.