After remaining in range-bound mode for the first three trading sessions last week, the indices slipped southward very sharply and moved below their short-term moving averages. All the sectors, including auto and real estate, which had sharp rallies in the past few months, were hit the hardest in the past two sessions. The selling in the Indian market can largely be attributed to profit booking by both institutional investors and traders.

The profit-booking spree by institutional investors might have been triggered by the fact that the Indian market has long been ignoring the negative impact that a bad monsoon is likely to have on the Indian GDP this year.

If we look at last one year’s performance of the Indian economy, a large part of the demand was coming from rural India and that is why Indian auto companies were able to outperform the bro-ader market. A bad monsoon is going to have twin negative im-pacts: First, it will hit the performance of the economy and prices of agro commodities will go up, leading to higher inflation. Secondly, it will impact consumer demand from rural India.

What is surprising is the fact that the failure of the monsoon is not new to Dalal Street. Yet, FIIs and traders are reacting to it in such a strong manner. Provisional figures of FII trading in Friday’s session showed net selling of more than Rs 1,000 crore. The re-ason for such selling could be the balancing done by some funds that invest both in India and China. With the Chinese market slipping southward, there has been selling by some of the funds in order to re-adjust India’s wei-ghtage in these funds, resulting in some selling in India.

But in reality, any attempt by the Chinese government to slow down their economic growth is going to have a positive impact on the Indian economy. A slowdown in the Chinese economy is going to lead to a decline in base metal prices in the international markets, which is a big positive for most companies in India.

Coming to news flow from international markets, the better-than-expected job data led to a sharp upward move in the US market in Friday’s session. This is likely to trigger a rally in Monday’s session in most Asian markets. Even the Indian market is likely to see a gap-up opening in the first trading session of the week. But whether the recovery sustains be-yond one day is a big question.

Fresh long positions in the market should be taken only after the Nifty is able to close above 4,700. Because after Fri-day’s move, it will become very tough for the Nifty to cross this double-top formation.

The short-term indicators of the Nifty have once again given a sell signal. The moving average convergence divergence (MACD) on the daily chart is now placed in the positive territory, but the average and trigger lines have started converging with each other, as they get ready to give a sell signal again. In case a clear sell signal appears on this chart, it will lead to a sharp decline in the Nifty as a negative divergence has already appeared on the chart.

The 14-day Relative Strength Index (RSI) has also given a sell signal as it moved southward from the overbought territory. The five-day RSI has already given a sell signal as it indicated a negative divergence and moved southward from the overbought territory. The medium-term oscillators of the Nifty have also turned bearish and given a sell signal.

There is a high possibility of the market once again coming under pressure after a minor short-covering rally. While there are a number of supports for the Nifty around the present level, it appears the pressure on the Nifty is far more than what it used to be till a few months ago. In fact, the Indian market may become an under performer compared with other Asian markets due to profit booking.

In the southward direction, the first support for Nifty will come at 4,350, after which another support exists at 4,140. These two are strong support le-vels and the Nifty should be able to take support above these two levels in the extreme short term. In the upward direction, 4,730 will act as a strong resistance for the index.