April 11, 2024

When the party got over actually? (Market Structure March 2024)

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Hi all. Hope all are doing well. In the past few days most of the positions would have hit the stop loss point and portfolio can be in deep red for some. Actually I was preparing this article yesterday and was writing about how bad it can become in the coming days. But, the fall today was so severe that I had to rewrite certain things. Today would have shaken out many traders, and would have shown them what a market can do in a few trading sessions.

However, this type of market correction is much needed to make money in the future. It is during these times healthy structures develop, money gets rotated and new leaders emerge.

If you think that small caps fell suddenly and it was due to some SEBI related restrictions on lumpsum investment in small and mid cap segment or any other reason, it is not entirely true.

The fall of nifty small caps/ micro caps were to happen and the deterioration started happening way back in December 2023 itself. The bear arrived long back but it is now only most of us are seeing when it’s growl is getting bigger.

The Indian VIX started rising into the positive zone exactly at that time and a negative divergence between nifty small cap index and its relative performance to Nifty was clearly visible. 

I had written about these changes in detail in this article “How to predict Volatility in stock market using INDIA VIX?”  . Do check this out to see how you also can predict certain things with some common sense and technical patterns. These are not a one time phenomenon. It happens over and over again. Also, using these same techniques earlier I had mentioned the Start of rally of small / mid caps in JUNE 2023. It will be worth a read. 

Kindly note that I am not boasting about my analysis skills. These are things anyone can do if you have some focus. Sometimes, it may not work. But that’s ok. In this article I am going to share my thoughts on “why one should slow down from now on and why one should be very careful of taking fresh positions particularly in small / mid and microcap names and why it may take more time for the market to stabilize”.

The Fall of Small-cap 100:

The small cap started to show signs of weakness from Dec 2023 however the real threat came when it broke the trend line on Feb 28.

After that it also broke the previous high pivot and entered into LOWER HIGH LOWER LOW Structure on daily TF. The chart is of yesterday as I wrote it yesterday. Today a clear sign of LH and LL is visible.

Weekly chart:


You can see the similar structure in NIFTY MICROCAP 250 also (Yesterday 12 March chart):

Change of money to Large caps?

Though the nifty small and microcaps are getting beaten down, Midcaps were performing relatively better till yesterday. But today mid cap also broke the previous pivot and also breach of 50 DMA.

See the midcap 100 structure:

However, Large caps are at All time high zones. This signifies that the money is changing from small / micro caps to good and large names with good fundamentals. This point is very important because the market sentiment is changing really fast and one should take note of it.

See the NIFTY 50 Large caps:

What should One do?

In the long term there is no immediate danger at least concerning large caps. If you are a long term investor you can continue the positions till your sell rules are met.

But in the intermediate term (next three to four months) the things may be very dicey. I wrote yesterday that the next pivot of the small cap has to be watched out carefully. But today that pivot was violated with huge supply. 

Have to see whether Small-caps can consolidate and then it should start trading above 50 DMA. If not more pain is yet to happen.

The guidelines:

The guidelines are for me. This can be different for you. So just take these points with caution.

My current positions have reduced to only four – five names. Rest all were booked. Some at break even, some at loss.

I had closed most of my positions today. Actually the positions kept going out of my portfolio in the last five to seven days. The stocks that hit my sell criteria were sold ruthlessly which helped me a lot to avoid today’s disaster to a decent extent. I follow these sell rules strictly to avoid disasters like the PAYTM that happened recently.

Only one or two positions are still left which also will be closed if the sell rules are met.

It is better to be defensive and no position should be taken till the confirmation comes. Or can take positions only in the big names like large caps with strict risk management. But large caps may also take a breather in coming days, since the elections are on the way.

Position sizing is the key in this market. Mastering this one skill is enough to survive. Risk management is an integral part of position sizing. Use my free position sizing calculator to find how much stock you can buy at a given time.

Hope I have made some relevant points for you and if you find my articles useful subscribe to my newsletters and get my articles delivered directly to the inbox.

Happy trading !!!

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