Technical Analysis

Index Outlook: Air pockets ahead

Lokeshwarri S K | Updated on January 22, 2018

PO16_Calendar.jpg

Index chart

The indices closed on a negative note. Global turbulence could drag them lower



Investors in Indian equities have much to contend with this week. The horrific terror attacks in Paris on Friday night are likely to cast a pall of gloom on market sentiment.

The CAC, the French market benchmark, lost around 3.5 per cent last week but the reverberations of the terror attacks will be felt only when the market opens this week.

But going by how stock markets have reacted after previous terror attacks, in 2001 for instance, there isn’t much to fear. After a initial knee-jerk reaction, stock prices tend to rally in a show of strength and solidarity with all those who have suffered from the attack.

The US market had bounced sharply after the WTC bombing, after an initial leg down. And that is the kind of reply that must be given to such heinous crimes.

The Sensex and the Nifty however are on a very weak wicket. What promised to be a benign week of muted stock price moves turned out to be quite a painful one.

The debacle of the ruling party in the Bihar elections set the tone for the week with the Sensex and Nifty opening more than 2 per cent down on Monday morning. But reassuring voices from the government helped assuage investors’ nerves and there was a strong pull-back in the same session.

Nervousness in global markets over the Federal Reserve’s impending rate hike roiled sentiment across the globe. Macro data from China was not too encouraging either, making commodities such as crude and copper dredge new lows, weakening commodity stock prices.

Macro data from India was not too cheerful with industrial production slowing in September and consumer price inflation moving higher. Foreign portfolio investors have turned net sellers in November, pulling out close to $381 million so far.

Nifty (7,762.2)

The Nifty moved further downward to lose 192 points last week.

The index has now moved firmly below the 50-day simple moving average, denoting bearishness. Oscillators in the daily as well as weekly charts are moving deeper into the bearish zone, implying that both the short and medium term trends are down for the index.

The week ahead: It is now obvious that the medium-term downtrend from the 9,119-peak has resumed in the Nifty.

There is a near-term support at 7,700. But it is quite likely that the index will go on to test the low of 7,539 marked on September 8. Those holding short positions should watch out for reversal around this area.

Any bounce in the coming days will face resistance in the zone between 7,965 and 7,982. Inability to move beyond this area will be the cue for initiating fresh shorts.

Move above 7,982 can take the index to 8,034 or 8,107. Short-term view will turn positive only on a close above 8,107.

Medium-term trend: The Nifty could be currently charting the C-wave of the move from 9,119. This wave has the targets of 7,363 and 6,762.

But as explained below, Fibonacci retracements of the move from August 2013 low gives us the support at 7,600. The Nifty halted here in September.

Investors need have no fear as long as the index forms a base in the zone between 7,500 and 7,600.

That will result in a sideways move between 7,500 and 9,000 for a year or so before the index moves higher; maybe towards 10,000.

But decline below 7,500 can mean a sharper correction that can result in a decline to 7,100 or even 6,300.

The long-term support for the Nifty is at 6,300 and that is where the index will stop, if there is intense sell-off following the Fed rate hike.

If we consider a 30 per cent correction from 9,000, that too gives us the target of 6,300. This is the key level from a long-term perspective.

Sensex (25,610.5)

The Sensex too lost around 654 points last week and ended close to its intra-week low.

The week ahead: The index can now move down to 25,287 or 24,833 in the days ahead. Investors can watch out for a bounce from either of these levels.

Resistances will be at 26,349 and then 26,839. Presence of the 50-day moving average at 26,349 adds to the significance of this resistance. Inability to move above this level will provide an opportunity for initiating fresh short positions.

Short-term trend will turn positive only on a close above 26,830.

Bank Nifty (16,932.8)

The CNX Bank index slid to the second support at 16,639 before stabilising above it. The index continues to have strong support at 16,639 and fresh shorts are advised only on a strong move below this level.

Any bounce next week will face resistance at 17,144 and 17,484. Inability to move above 17,144 will be the cue for initiating fresh short positions. Downward targets are 16,192 and 15,762.

Global cues

Global indices lost ground last week, reinforcing the fact that the medium-term downtrend that began in many markets this summer, is far from over.

The Dow closed 665 points lower creating an evening star formation in the weekly chart. This marks the beginning of yet another leg of the medium-term downtrend. Immediate support for the index is at 16,992. If this level is breached, decline to 16,376 is possible.

The grave-stone doji in the weekly candlestick chart of Shanghai is also ominous and Chinese equity market could be facing another bout of selling.

Published on November 14, 2015

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor