This has important implication for people who are engaged in momentum investing. The free ride that they were enjoying over the last many months has ended with the current downturn and from hereon one will have to be very selective about continuing the same style.
The final index that we shall take up is the FINNIFTY (Chart 5) where we are observing that the bears had taken control in mid-January although the trends now have turned largely neutral and the ADX line remains down. The bearish nature of the trend is evidenced by the bearish positioning of all the 5 lines of Ichimoku.
Collectively, it is evident that the main indices are into some form of ranging while the small-mid cap area has turned bearish. The Nifty is the best place amongst the set and since that arbites the sentiment on a day-to-day basis, a general feeling of complacency may still exist in the market. However, personal portfolio is the area which matters and there the mood has turned down. People straddled with purchases late in the cycle will find it difficult to participate aggressively as earlier. Much unloading of earlier profitable positions has already occurred during the 15% drawdown and buyers will largely emerge from this group as well as some new entrants to the market. In the larger indices, matters may continue as they are with range trading dominating.
Returning to the Nifty, all the action of the last week has still created only a higher bottom in the ongoing sequence of reaction bottoms Chart 6. This now allows us to shift our two trailing stop-losses 21,843 and 21,600 of futures. Since the Nifty has created a new high a pattern of establishing a lower top and then breaking minor bottoms will be required for a change of trend and this may take a while to occur and therefore the immediate change is sentiments are not envisaged in Nifty.