Failing to hold support levels indicates that the index is indeed weak as expected. More importantly, last weeks price action also breached a monthly low confirming that that the larger degree trend is very bearish.
For the short term outlook, we are approaching a Fibonacci 127% extension level at 11225 which may offer support and also at a time where we often see markets rally at the start of the month. However one must remember that for now any rally is a bear market rally and not one to get optimistic about or to raise hopes for new highs.
The recent sell signal provided by the momentum indicators has rewarded us with over 1200 points to the downside and stops have been lowered to protect gains. If the index climbs back above 11490 then we may see a test of 11725 or possibly 12000 before the trend resumes to the downside. Alternatively traders may anticipate a consolidation type of move which is typical after such an extended move.
As we are now -20% from the highs many longer term investors would consider the market as cheap however caution is required as sudden moves could still be towards the downside as the key support levels are lower than current levels. These are coming in at 11700 – 11600 as broad figures.
Technically the market is far from being oversold if we are in a true bear market and one can have further opportunities from upcoming moves both to the upside and downside.
Sandy Jadeja is Chief Market Strategist for ODL Markets and founder of www.Spreadbettingtowin.com where he teaches low risk trading strategies and money management.