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Why Stock Market is down today? Reason for Nifty fall

Why stock market is down today? Each time the market falls, everyone wants to know why the market is falling and more importantly – whether it’ll fall more.

On this page, we’ll try to analyse each time the market falls by 1% or more. The benchmark will be Nifty 50.

Update: There was a major stock market fall today (21 September 2020) – The reason has been updated at bottom of the article – scroll down.

Why does the stock market fall?

The answer is simple.

In the short term, the market moves because of buyers, sellers and their sentiments (i.e emotion, opinion or feeling).

When the strength of selling is more than the strength of buying, the market tends to slide downwards.

This leads to negative sentiment, which results in more selling.

As the selling increases, the sentiment worsens – finally leading to what is called as ‘panic selling’ – where people fear the worst and begin to sell.

This is exactly what happened in March 2020, when the fear of Covid-19 and economic depression was so severe – that people were just selling their shares and exiting the market.

When the sentiment is like what it was in March 2020, there are only sellers and very few buyers.

When the market is rising, the opposite happens.

The sentiment was terrible in March 2020, but once the market started to rise – sentiments slowly began to improve. And now, 5 months after the crash – the market is back to where it was.

If you stopped tracking the market in February and returned in September – many stocks have gone past their all-time high prices.

Market Falls are faster than rises

It’s like taking the stairs to go up and coming down on the elevator (lift). The fall is quick. The rise is usually much slower.

Another example could be a roller coaster. The move upwards is always slow and steady, the fall is quick and brutal.

Months and years of gains can be wiped out in days. This is why people fear the fall.

Before you even get a chance to react, the market could be down 10-20-30%.

Successful investors can handle market falls

If you want to be a successful investor or trader – you have to understand, rise and fall are part of the stock market.

Learning to handle the volatility is part of the learning process in the first few years.

Remember, if the market has to rise higher, it has to fall before going up. It’s like a punch – you have to move your hand backwards and then push it forward with force. That force to rise, only comes after a pullback.

Why Stock Market is down today?

The analysis in this section will be fundamental as well as technical (charts).

Market Fall on 21 September 2020

We had a sharp fall today at the stock market. Nifty fell 2.21%.

Mid and small caps saw bigger falls – many stocks crashing 5-10%.

There are 2 major reasons for this:

  1. The market had already run up a lot in the last 6 months – a decent correction was due.
  2. Stock markets around the world are weak. This could be due to the upcoming election in the United States.
September 21 2020 Stock Market fall

The above chart is of Nifty for the last 3 months. The candle which was created today on the daily chart was a big red candle, which we call the ‘Marubozu’ candle in technical analysis.

For more on this, you can read the detailed article on Marubozu Candle.

Usually, when such candles are created, it’s supposed to be a very bearish sign. But if you look closely at the chart, at the beginning of the month on September 4th – a similar candle was created. On that day too, the Nifty had fallen by 1.7%.

But even such candles need a confirmation of the trend on the next day. If Nifty continues its fall tomorrow, then it’ll be a certainty that the markets will remain bearish in the short term.

If it holds or rises, the fall could just be a false signal or a trap for shorters.

Today was also the first sign of significant weakness in the mid and small cap space. Many of these stocks have crashed by 5-10%. The Mid cap index fell by 5%, but these smaller indexes had also gone up quite a lot in the last few months.

Currently, it’s a wait and watch situation. Everyone is expecting the market to correct after the US election, but it could end up doing the opposite. We could have a correction before the US election and the market could continue its upward journey after the election result.

For now, traders should keep their stop losses and exit with discipline if the stop loss gets hit.

Longer term investors do not yet have much reason to worry. Such corrections are part of the market, they will happen often. If you as a long-term investor cannot bear such falls, you will not do well in the stock market.

If you are new to the market, experiencing these falls will help you in the long run. Hang in there.

Market Fall on 4 September 2020

Nifty was down by 1.7%, Sensex down by 1.6%. This was expected.

On 3rd September, in the US market – the Nasdaq crashed by 5% and Dow Jones was down 2.8%.

There is a reason for the fall in US markets. Stocks of technology companies like Apple, Facebook, Google, Amazon and others had moved up a lot.

For example; In February, Amazon was at $ 2170 per share (₹ 1.6 lakhs). It went down to $ 1627 (₹ 1.2 lakhs) in the March 2020 crash. Since then the stock has been on a spectacular bull run. It hit an all-time high of $3550 (₹ 2.6 lakhs) per share.

The story was the same for most major tech companies in the US. When stock price move so high in such a short period of time, they tend to exhaust. Profit booking is natural and healthy.

So it remains to be seen if this is a short-term correction or the markets will crack.

If you are wondering why we are discussing the US market here. That’s because the Indian markets are closely linked to the world markets.

Usually, when there is a significant correction in the US market, Indian markets go down too.

This is what happened on 4th September. Here too, the markets had run up quite a lot, a correction was due.

Is this going to be a major market fall? I don’t think so.

The charts are still very bullish.

Market fall - Nifty 4 September 2020

As you can see, the charts are still firmly bullish. The price has been bouncing from its 20 DMA (Daily moving average). It’s also above its short term support – which is around the 11350 range.

As long as the chart does not give a clear indication of a break down, there is no reason to anticipate a stock market fall and exit stocks in the long term portfolio.

Even short term trades are a hold at this point.

At the time of writing this article, the Dow Jones crashed nearly 2% for the second consecutive day. But has now almost entirely recovered. The Nasdaq Composite was also down heavily, but has recovered – closing 1.25% down.

India is ahead in time, so the markets will be closed over the weekend. If there is a fall of 1% or more on Monday, this article will be updated with analysis on why it happened and the way forward.

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