A close below the level of 17,800 on the Nifty 50 index will indicate a medium-term downtrend, according to Gautam Shah of Goldilocks Premium Research.
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Calling the month of December "mysterious," Shah said movement in the broader markets to be "baffling." He cited the example of Indian equities underperforming while global markets were relatively steady.
Before Monday's pullback move, the Nifty 50 index was down 5 percent for the month of December. The last time the index fell over 5 percent in December was back in 1994. Shah believes that levels of 18,100 are an important resistance for the index and a closing above that level is necessary to confirm that last week's sell-off was just a one-off.
On the upside, Shah has placed ceiling at 18,250.
In a market like this, Shah intends to be sector and stock specific. He is focusing on the top 100 companies currently and not on the broader markets, where midcaps and smallcap stocks have declined anywhere between 20-40 percent.
"Largecaps is where the liquidity is, where you can get in an get out really fast. If you are playing with a 1-3 month horizon, I would still go with the largecaps," he said.
Shah mentioned that it is too early to talk about a bear market as the Nifty 50 has not witnessed a large correction. He does not see that happening until the global markets weaken. For the Dow Jones, Shah sees 32,500 as a crucial support as that is where the index has its 200-day exponential moving average. "If 32,500 breaks then there is a reason to be concerned for the US market," he said.
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