This blog is all about timing the market — ‘Buy The Dip’ or ‘Wait Further’!
The NIFTY 50 or N50 is a benchmark Indian stock market index representing the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange. NIFTY 50 is one of the two leading stock indices used in India, the other one being the BSE SENSEX.
With N50 correcting almost 8% in a month and 10% year-to-date, investors are anxious to know how to time the entry or wait further.
Have the markets bottomed out?
Is it the right time to buy or should we wait further?
All these questions aim to buy as low as possible to maximize the gains. For sure, there is none but one who can predict the market.
Yes! You guessed it right!
For sure, that’s not me.
So Who can predict the market?
It is none other than the ‘Market Movers’ or the ‘Institutional Investors.’ All the retail investors (self) can try to observe and react to the market movements.
When there is blood in the streets, that’s when the Sharks and Whales surface for opportunities!
As retail investors, all we have to do is try to catch the Whale’s fluke and ride the trends. This is where the technical indicators will assist in spotting the market trends.
The index (underlying constituent stocks) needs momentum for any index to move up. Momentum simply means there are more buyers than sellers in any given period. For long-term investors, momentum means there are more buyers than sellers for a longer time frame. The momentum has to sustain to break above the resistance. If not, the index or any stock may fall back to its support leading to a sideways market.
These are the steps that I will adhere to and observe concerning NIFTY 50 or any other index. The beauty of using technical indicators is that they can be applied to all asset classes like stocks, ETFs, cryptos, commodities, etc.
Here are Some Questions frequently asked:
Should we buy the dips?
How far NIFTY 50 can fall?
What could be the best time to buy Nifty 50 Index?
Before we proceed further, please note:
Do your due diligence if or when placing a trade. All ideas stated here are my own and do not represent trading or investment advice.
Disclaimer: This is not a buy/sell recommendation and is shared for information & knowledge only. The author is not a professional (or) qualified investor, and the articles are not investment advice or a recommendation or advice of any sort. All the analysis/data are from the public domain, like, but not limited to, Yahoo Finance, Google Finance, and Investing.com. Consult your financial planner for any investing decisions. This article is not a paid promotion, and the expression in this article is solely the author’s research & analysis. While anyone can give a stock “BUY” recommendation, investors must have a strategy and know when to “SELL” a position. Do your due diligence before trade execution, and everything is at your own risk.
Here is my analysis:
NIFTY 50 is down by 15% from its all-time high. We have an upside potential of 18% from its current levels to all-time highs. NIFTY 50 is at 15800 levels, and 15600 to 15800 is a strong support level for the index. One can observe the price action around these support levels and see if the index rebounds like that of 7th March 2022 to 4th April 2022 (weekly chart).
If the bears continue due to broader market sell-offs, the next likely support is around 14440. I have indicated various support levels where NIFTY 50 may rebound. No one can predict how far the fall will be except the market movers. We are about to see where precisely the index rebounds and follow specific steps based on price action and technical indicators. One can apply a similar strategy to any ETF, stock, or cryptos.
When you attempt to draw support/resistance lines, it is better to try using weekly or monthly timeframe charts.
NIFTY 50 looks more like a sideways movement on a daily chart, and the coming weeks will confirm whether the markets will range or trend downwards.
Investors should not jump when the index or a stock jumps up just a day or two. Regarding long-term investments (not trading), I suggest confirming the trend reversal in two different time frames — preferably on a daily and weekly chart. More conservative investors may opt for confirmation on a monthly chart.
The sideways movements are confirmed by choppiness indicated by the moving averages, where the 20-day EMA and 50-day EMA have been whipsawing too frequently. NIFTY 50 confirms its bearishness as it trades below 200-day EMA, and watch out for the dead-cross where the 20-day EMA crossed below the 200-day EMA — which double confirms the bearishness.
MACD indicates bearishness as well as shown in the image above. We are clear that “NOW” is not the right time to “BUY” or go Long on NIFTY 50.
When Is the Right Time to go Long on NIFTY 50?
One of the simplest ways is to wait for trend reversal. The image below shows the commencement of the downtrend, and one can wait till the stock price breaks the channel (channel breakout).
Another way is to wait for the short-term EMA to cross over the long-term EMA- as an example: The 20-day EMA cross over 200-day EMA, and the 50-day EMA crosses over the 200-day EMA (Golden Cross).
Gauging Momentum Change:
Another way (which needs some expertise) is to check the MACD on monthly, weekly, and daily charts, and the MACD should confirm positive momentum in at least two different time frames. See the below images to compare Monthly and weekly MACD charts, indicating bearishness.
Putting it all together:
- Divide the capital allocated to buy the NIFTY 50 index into two or three parts.
- Wait to confirm the price action by support/resistances
- Wait for the MACD to indicate a change in momentum from bearishness to bullishness (at least in two different time frames)
- Wait for the moving averages to confirm the bullishness by a golden cross
- Deploy the first part of your capital when the 20-day EMA cross over the 200-day EMA and deploy the next part when the 50-day EMA crosses over the 200-day EMA.
While there are numerous strategies, what I have described here is one among those many. Investors should not mix up methods used for ‘buy & hold’ investing with position or swing trades.
Do not get carried away by golden or dead crosses as the only indication of bullishness or bearishness. A typical cross-over can be used as the confirmation along with other indicators.
“All big rallies start with a golden cross, but not all golden crosses lead to a big rally”
For example, one can use the trendline break out and moving average cross overs to confirm the uptrend and vice-versa for the downtrend.
With all the above being said, based on the charts, I believe NIFTY 50 is yet to reverse, and it is worth waiting until it breaks above the downtrend line as well as exhibits the golden crossovers as explained above.
I hope this was useful, and Do your due diligence if or when placing a trade/investing. All ideas stated here are my own and do not represent trading or investment advice.