DeepDive Week 2, 2025: Bears in control. Free fall week. Mayhem!
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MARKET BREADTH
Market Breadth at the end of Week 2 (Courtesy: ChartInk)
Week 2 witnessed relentless selling pressure that took the indices from ‘mildly bought’ zone to ‘highly oversold’ zone in short term. One the opening day of the week, 1340 stocks were down >3%. Despite the consecutive selling days throughout the week, panic selling on Friday took the indices to highly oversold territory. At the close of the week, only 15% of stocks were trading above 21D EMA, and less than 40% were above 200D EMA.
Nifty50 Index ended with (-)2.4%, taking it from 24,000 (last week close) to 23,430 level, now. With this 570 points downfall, Nifty now trades below 200D SMA. This is the BEARISH ZONE. The sentiment has changed to ‘bearish’. Only index that still is up-trending and have decent weekly close, is Nifty IT. The Management guidance by TCS Management about the positive upcoming quarters saved Nifty from losing some much worse that could have happened otherwise. On Friday, TCS was +5.6% and Nifty IT was +3.44%. Will IT index give strength to the other indices and reverse Nifty above 200D SMA, to start a fresh trend? Or, will the Bears pull the Nifty/Sensex to lower lows?
STRATEGIES WHEN NIFTY TRADES BELOW 200D SMA?
This is the territory where Bears are in control of the market, because the Bulls have lost all energy. Since the buying demand is low, even small selling can make, especially small/mid cap stocks to free fall. Especially in the age of ‘Algorithmic (Algo) Trading’, selling can happen very fast. A seasoned investor understands such market cycles and price behaviour, but if you’re new to the stock market, my dear friend, stock markets can be very brutal! Therefore, it is best to stay calm, and not panic sell the stocks especially at the oversold levels.
Nifty50 Technical Price Chart since 2024 (TradingView)
‘Yellow’ line is the 200D SMA. Note the last time when Nifty touched 200D SMA was in mid-November’24, which was followed by a short term upswing rally. However, the bulls couldn’t keep the index rally further, and the bears pulled it back to it’s 200D SMA.
If I were holding stocks at oversold levels when Nifty trades below 200D EMA, there can be only 2 strategies in such a scenario:
I won’t sell: when these stocks are my fundamental investment bets, and I have conviction that they will reverse to create new highs when the dust settles, as the businesses are in top-growth phase; or
I will plan to sell on upswing rally: when the stocks where I got trapped were short term swing/positional trading bets, I will wait for a short term upswing to offload my holdings. Generally, when the markets get oversold, it can be followed by temporary upside rally. That is the time, I will use to sell my holdings. But this action can be very fast, so have to be prepared in advance. This strategy works when the indices show no signs of bottoming, and weakness continues with indices facing rejection on reversal candles. Ideally, as a trader, you should never be in this situation!
SITUATIONAL SCENARIO:
Will I panic sell my entire portfolio after a significant drawdown, especially when Nifty trades at highly oversold levels?
No. I never sell my holdings on panic days. Panic selling days can ambush us anytime! Therefore, a strategy has to be in place beforehand. As a Trader, you should never find yourself holding stocks at when Nifty and key Indices are trading in bearish zones , or you should wait for a small rally to sell whatever shares you’re holding.
Selling is an ‘art’. But, Panic Selling is more likely to be a blunder!
Most of the times, panic is created in the market because of some mis-information, especially if the fall in indices is a single day or short term pain. By panic selling the entire portfolio on such a day, you’re taking away the opportunity to recover back even stronger. Panic selling on misinformation will leave your with is a hole in your portfolio! a big hole!
Or, when as a Trader you have missed to sell on signs of weakness in Index, and fear overpowers you seeing your portfolio gains evaporate with consecutive red days. Panic Selling at such oversold market levels can still be a blunder, if you haven’t timed you selling to be executed on strength days!
SELLING IS AN ART. There is no straight jacket perfect answer. As a Trader, you should aim to be guided by the right knowledge, experience and trading rules (‘trio’). Don’t let your emotions take over this trio.
MOMENTUM STOCKS HAD A FREE FALL WEEK!
Have a look at the price erosion in some of the high momentum Midcap and Smallcap stocks, during Week 2. This free fall in the stocks is self-explanatory, but needs correlation with the SmallCap and MidCap Indices. Check these 2 indices during the week, and find the levels that triggered unrelentless selling pressure. That’s your homework for this week!
Here are some of the high Momentum Midcap stock with deep price fall during the week:
KEC: -20%
Kalyan Jewellers: -19%
Kalyani Steel: -15%
Bluestar: -15%
PB Fintech: -15%
Techno Electric: -15%
Piramal Pharna: -13%
360 ONE WAM: -12%
CAMS: -11%
Dixon: -9%
Look at their weekly price fall:
Technical Charts (Weekly): Momentum Midcap Stocks witnessing sharp price correction [Chart Courtesy: TradingView]. Use arrows to shuffle the charts.
NIFTY50 STOCKS’ PERFORMANCE
Nifty50 stocks showed mixed performance during the week. While the top performing stocks were from the IT space, primarily due to in-line results posted by TCS with a management giving good guidance for next few quarters. While the majority stocks ended in red zone, some stocks (banks, metals, energy & infra) witnessed deep price correction.
Nifty50 Top Gainers of the Week:
LTIM : +6.8%
TCS : +4%
Tata Consumer Product : +3.5%
HCL : +2.5%
Wipro : +2%
Look at their technical charts:
Technical Charts (Weekly): Nifty50 Top Gainers [Chart Courtesy: TradingView]
Nifty50 Top Losers of the Week:
Shriram Finance : -12.7%
NTPC : -9.3%
Tata Steel : -8%
Ultratech Cement : -7.8%
Adani Enterprise : -7.5%
Adani Port: -7.3%
Coal India: -6.4%
SBI : -6.3%
IndusInd Bank : -6%
HDFC Bank : -5.2%
Look at their technical charts:
SPOT ‘ANTI-GRAVITY STOCKS: POWERFUL STOCKS THAT DEFY THE GRAVITY OF FALLING INDICES
Ever seen a dark cloud? It will always have a silver-lining. If you want to be a successful trader in the stock market, you have to always control your emotions when the price action is such, as was seen during this week. Look for that ‘silver lining’. Find stocks that are showing defiance to gravity of overall bearish sentiment and selling pressure. They should be added to your watchlist. Don’t rush! You can never judge the bottom. Sit tight and let the indices resume their uptrend. That’s when you find powerful stocks breaking out from a base. You just have to spot a good ‘entry’ with favorable risk-reward. Sounds easy? Trust me, it is not easy, but you can achieve it with the right knowledge and training.
And, STOP averaging your losing trades with every fall in the indices. Why? As, it is also likely that the maybe in Stage 4 (Downtrend) and may not recover when the Indices resume an uptrend. Weakness in such stocks can remain for a very long time. Stock that fall the least, are likely to be the ones that recover the first. Ride the winners, if you ever have to!
Do a homework exercise. Look at the PSU and Realty stocks, on weekly/monthly, timeframe, and observe how long they took to reach their previous all-time high levels. NTPC, ONGC, DLF, COALINDIA and more… Interestingly, some stocks haven’t touched their previous all time high. For instance, nothwithstanding all the hype and tremendous real estate development that DLF has done, it hasn’t yet touched its previous all-time-high price of Rs.1200 it created in 2008. Even after 16 years, it currently trades at Rs. 720. So, you have to be extremely mindful in your learning as a Trader. Don’t buy stock just because your friend gave you a tip. Learn the process first, know the risks involved and then play for the returns. It’s Bottom-Up approach. Sadly, most of the retail investors are following the wrong ‘Top-Down’ approach where they trade to earn returns without knowing the risk or the process. Either you can change yourself, or the market will do it. The latter comes attached with a very high price. Choice is yours!
Let’s see what the coming week has for us. See you with ‘Week 3 DeepDive’. Till then, just don’t do anything that your shouldn’t. The fall is temporary, this too shall pass!
