Market Sentiment Update

Short term the market is getting oversold unless we are set up for a free fall, for which no reason is visible. So in that context here are some indicators

The Client Options position on a % basis shows a 20%+ Long position which usually happens closer to bottoms. This combined with a below 10 reading with the swing could mean we are looking at a near term bottom after the recent correction. Waiting for a final confirmation from the market turning positive again on a closing basis.

Nifty has reached the lower end of the falling channel on this chart and that means a-b-c almost done although c=a near 11024 is not reached. From the lower channel near 11070 the hourly chart shows a hammer candlestick into the low of 11084 low today. That can mark the low for the market.

Bank nifty is near a 50% retracement of the entire rise from the March low. Some of you have asked me if we can mark this advance as a leading diagonal. Yes if done as below it is possible, where wave 4 is taken as a diamond triangle. Then the entire 5 waves up is wave 1 at larger degree.. This wave count diferes from Nifty or Nifty 500 and the Midcaps. This is a consequence of Banks taking the burden of the economy on the same lines as US and European banks did after 2009. The July LSR highlighted the poor performance of banking since. So banks may advance but will underperform relative to Nifty is the analogy is true.

Lastly the Smallcap index was counting differently from the Nifty where wave 5 of 3 was not complete. The last hurrah last week then was wave 5 of 3 for the Midcap index and the last 2 days correction is wave 4 down as shown here. Now this index and Nifty would have the same wave count for wave 5 up next medium term.

The recent correction has also brought the 20 day A/D ratio lower to the first red line for a minimum oversold reading based on past data. Lets see if it works out as an indication of being oversold.

Lastly as discussed yesterday, even as US stocks crash the US VIX does not care. In other words it opened and shot higher but could not hold its gains. For 3 consecutive days the VIX crashes at the end of the day, a non confirmation of the recent panic in US equities, that signals an imminent bottom.