Technical Analysis

Index Outlook: Are Sensex and Nifty 50 headed for a correction?

Gurumurthy K BL Research Bureau | Updated on September 18, 2021

The benchmark indices, which gave up the gains made in the week on Friday, seem to have limited upside

Indian benchmark indices, the Sensex and Nifty 50, continued to surge in the past week. The indices outperformed global peers by surging to record highs. The Sensex made a high of 59,737.32 and Nifty touched 17,792.95 on Friday. However, the indices fell back sharply from their respective highs, giving up all the gains made, on Friday. The Nifty has closed the week at 17,585.15, up 215 points or 1.24 per cent. Sensex, on the other hand, was up 710 points or 1.22 per cent for the week and has closed at 59,015.89.

All eyes will be on the US Federal Reserve meeting outcome on Wednesday. Market is expecting the Fed to announce when it would begin the stimulus taper. If the Dow Jones Industrial Average gets beaten down after the Fed policy meeting, then the Sensex and Nifty will also be vulnerable for a sharp correction, going forward. We will have to wait and watch.

Nifty 50 (17,585.15)

The Nifty 50 broke above 17,400 and rose to 17,700 as mentioned in this column last week. However, the sharp 207 points pull-back from the record high of 17,792.95 on Friday leaves a sign of worry. As such, investors should remain cautious in the coming week instead of being strongly bullish at these levels.

The week ahead: For the coming week, 17,800 will be an important resistance to be watched. Nifty has to break above 17,800 in order to keep the momentum going. Such a break can take the index up to 17,900-17,950. A pull-back to 17,700-17,600 is possible thereafter.

On the downside, 17,250 will be a crucial support. Nifty has to necessarily sustain above 17,250 in order to keep the current uptrend intact. In case Nifty breaks below 17,250, it can come under pressure for a fresh corrective fall. In such a scenario, it can fall to 17,000 initially.

If so, traders will have to unwind their long positions and look to initiate fresh shorts in the market. Investors will also have to look for booking partial profits at current levels and enter the market again on a correction.

A bounce-back move from 17,000 to 17,400 cannot be ruled out. A further break below 17,000 can trigger a much deeper fall to 16,700-16,650 eventually thereafter. Broadly, 17,250-17,800 will be a range of trade for the near term. A breakout on either side of this range will then determine whether the Nifty can go up to 17,900-17,950 or fall to 17,000.

Medium-term outlook: The medium-term trend is up. Any fall to 17,000 and 16,700-16,650 mentioned above will just be a corrective fall within this medium-term uptrend.

As mentioned last week, 16,600-16,400 is a strong and crucial support zone to watch from a medium-term perspective.

The uptrend will come under threat on a strong break below 16,400. Such a break can drag the Nifty to 16,000 initially. A further break below 16,000 can take it down to 15,500 and 15,000 over the medium term.

Sensex (59,015.89)

The Sensex lost over 700 points from its record high of 59,737.32 on Friday. It will have to be seen if it can sustain above 59,000 this week which would aid the index to move up to new record highs.

The week ahead: If the Sensex manages to sustain above 59,000 this week, it can rise to 60,000-60,200 in the near term. Thereafter a reversal is possible. But a fall below 59,000 on Monday itself can drag it to 58,500 initially. The levels of 58,500 and 58,000 are important supports. The Sensex has to sustain above 58,000 to keep the broader uptrend intact. A break below 58,000 can bring it under pressure for a sharp correction towards 57,000 and even 56,000.

Medium-term outlook: The level of 56,000 (revised lower from 57,000 mentioned last week) will be a crucial support to watch from a medium-term perspective. The medium-term uptrend will come under threat if the Sensex breaks below 56,000. Such a break can drag the index lower to 54,000 and even 52,000 over the medium term.

Nifty Bank (37,811.95)

The support at 36,200 mentioned last week has held very well and the Nifty Bank index has surged over 3 per cent last week. This keeps the broader bullish view of seeing 39,000-39,500 on the upside intact. Supports for the week will be at 37,150 and 36,950. A slightly deeper support is at 36,500.

Traders can go long on dips at 37,200 and accumulate at 37,000. Stop-loss can be placed at 36,800 for the target of 38,500.

Global cues

On the global front, the Dow Jones Industrial Average (34,584.88) was stuck in a range of 34,500-35,000 all through last week. On the charts, the Dow looks vulnerable to break 34,500 and fall to 34,000 initially. As mentioned last week, 34,000 is a very crucial level to watch. A break below it can trigger a strong corrective fall towards 33,000 and even 32,000 in the coming months. In that case, the Sensex and Nifty can also come under pressure for a sharp correction.

As such, the price action in the Dow will need a close watch in the coming days as it could set the direction of move for the other global indices.

Published on September 18, 2021

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