Are We Heading Towards 7300?

Nifty darling witnessed steep decline on Tuesday after RBI took a cautious stance on the economic recovery even as it cut the policy rates by 25 basis points. Adding to pessimism, Indian 
Meteorological Dept. (IMD) latest report on monsoon indicates delay and downgrade in monsoon 
forecast, further dampened the sentiments. As a result, selling pressure was witnessed across the 
board even today and the darling gave two consecutive closes below 200 DMA. Even Pharma & IT which were coming to rescue the darling earlier are failing to provide support this time. 

Overall Technical Picture analysed from different perspective gives sign of horrible picture ahead. Let us discuss one by one.

1. Fibonacci Retracement Theory : - As per the Fibonacci Retracement & Extensions Theory  50, 61.8 or 78.6 retracement will often go to the 161 Fibonacci extension after breaking through the 0%-level. So as per the theory  7997 which was the swing low from where the darling retraced up to 61.8 level. Now if we believe the theory 161 Fibonacci Extension comes around 7300 levels provided 7997 is breached in a convincing manner. This is quite horrible, isn't it?

2. Chart Pattern Theory :-   

Nifty seems to have developed Head & Shoulder pattern on a daily chart. The Neckline Area is around 7960. So as per the  Head & Shoulder Chart Pattern Theory if 7960 is breached in a convincing manner the possible downside comes around 7200 level which again is quite horrible.

3. Moving Averages Theory :-  Among all the Moving Averages 200 DMA is considered to be of utmost importance. Above 200 DMA the Index or Stock is considered to be in the grip of Bulls. On the contrary below 200 DMA bears have the firm grips. Now as per the said logic Nifty seems to have breached 200 DMA in a quite convincing manner as today the darling witnessed huge volumes still failed to close above the same for the second consecutive day.

How to Trade in such bearish scenario?

1. Avoid Over leveraging.

2. Avoid high beta stocks.

3. Different Options Strategies like Buying ATM or ITM or Selling OTM Call Options can be tried.

4. Trade small position Size with strict Stop Loss.

5. Buying Blue-Chips stocks in installments as the time of maximum pessimism is the best time to enter such counters in a gradual manner.

6. Avoid carrying high leveraged position overnight.