Is today's fall a healthy pullback or are markets heading lower? Here's what experts say

With benchmark equity indices showing a significant decline, market experts discuss whether this is simply a healthy pullback or an indication of deeper troubles ahead.

The benchmark equity indices extended losses for the third straight session on Tuesday, with the Sensex and Nifty falling over 1 percent, dragged down by profit-booking in heavyweight stocks, rising global bond yields, and concerns over a resurgence in Covid cases.

Market Reaction

The Sensex dropped 872.98 points or 1.06 percent to close at 81,186.44. - Opened positively but soon turned lower. - Hit an intraday low of 81,153.70. - Only three of the 30 Sensex stocks ended in the green. - Autos, financials, and defense stocks were the most affected.

Similarly, the Nifty slipped 261.55 points or 1.05 percent to end at 24,683.90. - Declined for three consecutive sessions. - Raised questions about market stability.

Expert Insights

Devarsh Vakil, Head of Prime Research at HDFC Securities, attributed the sharp decline to a mix of domestic and global factors: - Rising Covid-19 cases in Southeast Asia, including Singapore and Hong Kong. - Firming global bond yields, especially in Japan, impacting sentiment. - Uncertainty over India-U.S. trade discussions.

Vakil noted a technical shift: - Nifty closed below its 5-day EMA for the first time since May 8. - Indicating a switch from buying dips to profit-booking. - Support levels identified at 24,494 and 24,378. - Resistance seen between 24,800 to 24,900.

Strategy and Analysis

Analysts at Bajaj Broking highlighted a bearish momentum: - Nifty formed a sizable bearish candle on the daily chart. - Lower high and lower low pattern suggest a continuation of the corrective phase.

Near-term consolidation expected: - Between 24,400 and 25,200 to cool off overbought conditions seen previously. - The 24,350–24,400 zone emerges as critical support. - Aligns with the prior week's low, 20-day EMA, and 61.8% Fibonacci retracement level.

Potential Risks and Considerations

Expert opinions warn of several risks: - Global economic pressures could exacerbate market instability. - Investors should be cautious of rapid shifts in the market landscape. - Attention needed on macroeconomic indicators and global trade developments.

Conclusion

The recent declines in the Sensex and Nifty have sparked a debate among investors and analysts regarding the nature of this movement. - Is it a healthy pullback after a strong market run? - Or does it signal more profound systemic issues?

As markets navigate through these turbulent times, understanding the underlying factors and potential implications is crucial for investors. Continuous assessment of market trends and informed decision-making remains key for any investor strategy.