On October 29 2024, the Double Top Pattern has formed again on the Hourly Charts for Nifty 50 index, indicating another series of downward trends. The market has continuous bearish pressure till the onset of ‘Muhurat Trading Hour’ which is scheduled for Nov 1 2024. Traders to stay cautious.
The Double Top Pattern is a bearish reversal chart pattern that signals a potential trend change from bullish to bearish. It forms when a stock or index reaches a high point twice, with a moderate decline in between. The two peaks indicate that the asset failed to break resistance, showing weakening bullish momentum. The pattern is confirmed when the price breaks below the support level (the “neckline”).
Read more: The Double Top Pattern: A Continuing Impact on India’s Stock Market
What is happening in the Indian Stock Market?
The domestic equity market indices, Sensex and Nifty 50 closed with gains of 0.45% (363.99 pts) at Rs. 80,369.03 and 0.52% (127.70 pts) at Rs. 24,466.85, respectively. The volatility index India VIX rose 1.61% to close at 14.52 indicating more volatile sessions ahead.
Last week, Indian market indices fell nearly 2% each mainly due to the increased pressure from the weak quarterly earnings from index heavyweights as well as major firms.
Why is Indian Stock Market in pressure?
FII Selling
Foreign Portfolio Investors (FPIs) have sold Indian equities worth ₹98,086 Crore between October 1 and October 28, 2024, according to data from the NSDL. On the other hand, Domestic Institutional Investors (DIIs) have made net purchases of ₹92,932 Crore, partially offsetting the impact of foreign sell-offs.
FIIs have been reducing their exposure to Indian markets in favor of cheaper stocks in China and Hong Kong, where valuations are more attractive. Another contributing factor is the weak Q2 earnings in India. This mismatch between rising market indices and lackluster earnings growth has led to a shift in sentiment, with investors adopting a “sell on rise” strategy.
Impact of Poor Earnings
Q2FY25 earnings have been underwhelming. According to CRISIL, revenue growth for Indian companies during the July-September quarter is expected to be 5-7% year-on-year (Y-o-Y), marking the slowest growth in 16 quarters.
Effect on Broader Markets
The sell-off by foreign investors has impacted not only large-cap stocks but also midcap and smallcap indices. During Friday’s trade, both segments experienced a sharp decline of around 3% on the BSE. Over the past seven trading sessions, the smallcap index has dropped 9%, while the midcap index has fallen 7%.
Way Ahead
The current outlook for Nifty 50 appears bearish as the formation of a double top pattern suggests further downward pressure. Historically, the double top has been a reliable indicator, often leading to market corrections. This development has particularly benefited options traders, who thrive on market volatility and sharp price movements.
However, equity traders and long-term investors may need to proceed with caution. A confirmed double top pattern could signal a significant trend reversal could result in a period of market uncertainty or stagnation, potentially making it more challenging for equity investors to generate returns in the short term.
When is Muhurat Trading this year (2024)?
Muhurat Trading is a special, symbolic trading session held by the Indian stock exchanges during Diwali. This session, typically lasting an hour, marks the start of the new financial year according to the Hindu calendar. Investors participate as a ritual to seek prosperity and good fortune in the coming year.
For 2024, Muhurat Trading will take place on November 1. The session is scheduled in the evening, with the main trading window from 6:15 PM to 7:15 PM (IST). It will be preceded by a pre-open session from 6:00 PM to 6:08 PM and followed by a short post-close session ending at 7:40 PM.
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) announce the timing of Muhurat Trading every year. The announcement is typically made a few weeks before Diwali, outlining the exact date and time of the trading session. This special hour-long session coincides with Lakshmi Puja, considered an auspicious time to start new ventures.
Given the potential impact of the Double Top Pattern, the market could experience heightened volatility, posing a significant challenge for both equity investors and traders. To navigate this uncertainty, Traders and Investors should adopt a cautious approach by prioritizing investments in companies that have delivered strong quarterly results with healthy fundamentals.
