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The Indian benchmark indices opened the week with a wide gap-down taking cues from the sell-off in the global markets. However, both the Sensex and Nifty 50 managed to recoup all the loss amid an extended fall witnessed in the other major global equity markets. Sensex and Nifty 50 were down marginally by 0.05 and 0.11 per cent respectively. However, the BSE MidCap and BSE SmallCap indices outperformed last week and were up 1.37 and 1.35 per cent respectively.
Although, the benchmark indices have risen back well from their lows, the broader picture on the chart is not still convincingly bullish. Additionally, the price action on Thursday and Friday indicate that the benchmark indices are not getting a strong follow-through buying. As such, more caution is needed at this point of time rather than being extremely bullish.
Among the sectors, the BSE Realty index outperformed by surging 3 per cent. That was followed by the BSE Capital Goods and BSE Auto index, which were up 2.75 per cent and 2 per cent respectively. The BSE IT index continues to get beaten down. It was down 3.23 per cent last week followed by the BSE Metals index, down 2 per cent.
FPI flows
The inflows into the Indian equity segment continues. The Foreign Portfolio Investors (FPIs) bought $777.86 million last week. The month of August saw a huge inflow of $6.44 billion. The FPI buying should gather pace in order to help the benchmark indices to move higher, breaking above their resistances.
Nifty 50 (17,439.45)
Nifty opened with a wide gap-down on Monday and tumbled to a low of 17,166.20. However, it managed to recover all the loss and surged back to make a high of 17,777.65 the very next day. It has come off from the high and closed the week marginally lower at 17,439.45, down 0.11 per cent.
Graph Source: MetaStock
The week ahead: Barring the sharp fall on Monday last week, Nifty broadly looks to be range-bound between 17,400 and 17,800. Important trend-line resistances are at 17,720, 17,750 and 17,775. As long as the Nifty trades below these resistances, the chances are high for it to break 17,400 this week. Such a break can drag it down to 17,100 – a trend-line support on the daily chart. A break below 17,100 will then pave way for an extended fall to 16,970 – the 200-Day Moving Average (DMA), or and even lower.
The short-term bias will turn positive only if the Nifty breaks above 17,775. In that case, a rise to 18,000 can be seen.
Medium-term outlook: The level of 18,000 is a crucial level to watch from a medium-term perspective. As long as the Nifty trades below 18,000, the broader outlook is bearish.
Important supports are at 16,750 – a trendline and 16,676 – the 21-Week Moving Average (WMA). A break below the 21-WMA support will accelerate the fall to 16,000. Such a fall will bring back the danger of seeing 15,000-14,500 on the downside in the coming months.
Nifty has to make a decisive weekly close above 18,000 to turn the medium-term outlook positive. In that case, Nifty can rise to 18,400 and 19,000 initially and then much higher thereafter. That will then negate our bearish view of seeing the above-mentioned fall.
Trading strategy: The trailing stop-loss at 17,600 on the short positions taken at 17,800 has been hit. We suggest going short again at current levels and accumulate shorts on a rise at 17,730. Keep the stop-loss at 18,220. Trail the stop-loss down to 17,450 as soon as the index falls to 17,200. Move the stop-loss further down to 17,150 when the index touches 16,600 on the downside. Exit 30 per cent of the holding at 16,100 and hold the rest with a revised stop-loss at 16,800.
Sensex (58,803.33)
Sensex fell sharply to make a low of 57,367.47 on Monday. Thereafter, the index reversed higher sharply and made a high of 59,599.78 before closing the week on a flat note at 58,803.33.
Graph Source: MetaStock
The week ahead: The immediate outlook is mixed; 58,200-59,700 can be a range of trade for some time. Strong trend resistances are at 59,675, 59,850 and 59,935. The bias is negative as long as the index trades below these resistances.
The chances are high for Sensex to break below 58,200 in the coming days. Such a break can drag it down to 57,700-57,500 initially. A break below 57,500 can take the index further down to 57,000 – a trend-line support and even 56,867 – the 200-Day Moving Average (DMA).
For the near-term outlook to turn positive, Sensex has to break above 59,935. Such a break can then take it up to 60,500.
Medium-term outlook: The region between 60,500 and 61,000 is a crucial medium-term resistance. Sensex has to necessarily break above 61,000 to become convincingly bullish to see 62,000 and higher levels.
As long as Sensex stays below 61,000, the medium-term view is bearish. A break below the 200-DMA support level of 56,867 can drag the index down to 55,700 – the 100-DMA support and even 55,250 – a trend-line support. Such a fall will bring back the danger of seeing 50,000-49,000 on the downside.
Nifty Bank (39,421)
The Nifty Bank index broke below the intermediate support level of 38,400 last week, but did not extend the fall up to 37,500. The index made a low of 37,943.85 and then reversed higher sharply recovering all the loss. Nifty Bank index made a high of 39,667.65 and closed the week 1.11 per cent higher at 39,421.
Graph Source: MetaStock
Broadly, the index remains well within our preferred broad range of 37,500-40,150. We will have to wait for a breakout on either side of 37,500 or 40,150 to get clarity on the next direction of move.
Trading strategy: We will continue to stay out of the market.
Global cues
The Dow Jones Industrial Average (31,318.44) fell for the third consecutive week. The index tumbled 3 per cent last week. The outlook is bearish to test 30,000-29,700 initially and then even 29,300 eventually in the coming months.
Graph Source: MetaStock
Cluster of resistances are poised in the broad 32,300-32,500 region. Any intermediate bounce will be capped at 32,500. The bearish outlook will get negated only if the Dow breaks above 32,500 decisively.
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