Expert take: Nifty may dip to 9,770 and then touch 9,400

By Rohit Srivastava, Fund Manager PMS, Sharekhan

The market could extend its fall further in the coming week with the immediate support level resting around 9,880 levels. Analysts suggest that traders should look to reduce their leveraged positions and initiate pair trades. The short-term hope may be in the pharmaceutical sector. On the upside, 10,135-10,180 will act as a resistance zone for the market.

We are in the eighth month of a rally in Nifty. Since May, we have been witnessing relative outperformance of Nifty over high in Nifty this month was not midcaps. The new high in Nifty this month was not confirmed by Bank Nifty leading to an inter-market divergence. Weekly momentum indicators have multiple negative Divergences that are indicative of a market in distribution mode. The inter market divergence followed by this week's sell-off is signature of a major trend reversal.

Expect the decline to continue. Any bounce will be a shorting opportunity for bears. The Nifty may initially dip to 9,770, and below that to 9,400. The decline is being led by small and midcaps. Banking stocks are the weakest. Nifty is lagging behind. Expect the decline to be broad based with biggest losses in small and midcap stocks. Long-term investors should create capital to buy at lower levels. The only short-term hope may be in the defensive pharmaceutical sector.