In profile we often use the term “long liquidation” to describe the process of movement of money from existing long positions.
Similar to short covering rallies, these breaks are against the prevailing trend and can be sudden and sharp.
Those who are still grappling to get to say 58XX levels instead of 61XX levels so earlier in the year would testify about the sharpness.
Long liquidation is a process that adjusts inventory that has gotten too long. It occurs within every time frame; day time frame long liquidation may be over quickly while longer time frame long liquidation may last for much longer periods of time.
We have to be on guard to see if the profile throws up new money selling in the Nifty futures, instead of the long liquidation seen at the moment.
Let’s look at the chart :
The 5 profiles on the right depict the carnage from 6210 to 5750 today.
What’s interesting to note in each of the profiles is the ease at which downward range extension has been facilitated.
The downward movement actually began with the Bank Nifty which is already down 1300 points.
The bank Nifty at the close today is well below it’s Oct and Dec lows and maybe a pre-cursor to the Nifty taking out it’s recent lows.
It’s also important to note that even with the VIX up as much as 11 % today, the fear in the market is not very palpable as can be seen by sundry long calls still flying around.
Value is being created lower. Range extension continues. There is no reason to buy the market yet..