The Indian stock market may be close to the end of its current sell-off, with sentiment and positioning indicators reaching extreme levels, according to Rohit Srivastava, Founder and Strategist at Indiacharts.com and Strike Money.
Srivastava expects the Nifty to find support around 22,180, while a deeper correction could take the index towards 21,780. Once the market confirms a reversal, he expects an initial rebound towards the 23,500-23,800 zone.
Srivastava said the current correction has spread from largecaps to midcaps and is now beginning to affect smallcap and microcap stocks, suggesting the market is approaching the final stage of capitulation.
“We are in a capitulation. We should be in the final stages.”
He said several sentiment indicators, including positioning, breadth and the number of stocks breaking key moving averages, have reached levels rarely seen before.
Nifty support seen at 22,180 and 21,780
Srivastava identified two key support levels for the Nifty.
The first is around 22,180, which is close to the April low and also aligns with his Fibonacci calculations. If that level fails to hold, he sees the next support near 21,780, implying another 1-1.5% downside.
“One of those levels, I think, somewhere is where we should see the last and final reversal to this sell-off.”
He said smallcap and microcap indices remain the final segments where the momentum cycle has not fully played out. If these indices also complete the correction seen earlier in largecap and midcaps, the broader market sell-off could reach a conclusion.
Reversal could take Nifty towards 23,500-23,800
Srivastava said he is avoiding fresh short positions because the market already appears stretched on the downside.
Instead, he is waiting for a clear reversal signal before taking long positions.
“The next reversal point, wherever it is, could be a very important one.”
He expects the first leg of any recovery to take the Nifty back towards 23,500-23,800, although he stressed that he would wait for confirmation before entering trades.
Weak dollar could ease pressure on emerging markets
Srivastava said developments in global bond and currency markets could play a key role in determining when the reversal begins.
He noted that bearish positioning in the euro, Swiss franc and global bonds has also reached extreme levels. A reversal in these assets could weaken the US dollar and reduce pressure on emerging markets, including India.
According to him, any intervention that pushes US bond yields lower could act as a trigger for a broader market reversal.
He said the dollar index could stretch towards 102.8, but sees limited upside beyond that level.
Rupee may be close to a peak
On the dollar-rupee pair, Srivastava said the near-term level to watch is 96.96.
If that level is crossed, the rupee could weaken further towards 97.60-97.70, but he does not expect sustained depreciation from there.
He pointed to the quarterly RSI on USD/INR, which is above 90, as a sign that the pair is already overextended.
Srivastava said this could result in either a long consolidation or a reversal once the current move runs its course.
Investment portfolios holding up better than trading positions Srivastava said most of the stocks recommended by his team since April remain profitable, with diversified exposure to mid- and small-cap companies helping protect portfolios.
He added that hedges through put options were recommended when the Nifty was close to and then broke below 24,000.
For traders, however, the recent decline has been more difficult. Srivastava said he has closed short-term positions and is waiting for a more reliable reversal signal before re-entering the market.
For the full interview, watch the accompanying video
Rohit Srivastava sees Nifty support at 22,180, says next reversal could trigger sharp rebound
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