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The Indian benchmark indices broke their range on the downside last week as expected. Though indices Sensex and Nifty 50 managed to retain their range and bounce back in the first half of the week, Russia attacking Ukraine on Thursday dragged the indices sharply lower. Sensex and Nifty tumbled, breaking below their key support levels of 56,100 and 16,800 respectively. Nifty has closed at 16,658.4, down 3.58 per cent and Sensex has closed 55,858.2, down 3.41 per cent.
Though the indices have managed to bounce back well on Friday, the Russia-Ukraine war is likely to keep the market highly risk-averse. As such, the upside could be capped in the coming days and the Sensex and Nifty are likely to remain under pressure and fall further in the coming weeks. Indian markets are closed on Tuesday on account of Mahashivratri.
All sectoral indices closed in the red. The BSE Oil and Gas index tumbled the most by 6.54 per cent. The BSE Capital goods, BSE Auto, BSE PSU indices were all down over 4 per cent each.
Foreign Portfolio Investors (FPIs) continue to sell Indian equities. They had sold $2.109 billion last week. This totals to an outflow of $4.153 billion for the month of February so far. The FPIs have pulled out $8.86 billion from Indian equities so far this year.
Nifty 50 (16,658.4)
The key 200-Day Moving Average (DMA) support at 16,905 held well in the initial part of the week. Nifty made a strong bounce from the low of 16,843 on Tuesday. But that was short-lived as Russia’s attack on Ukraine on Thursday dragged the index sharply below the 200-DMA. Nifty tumbled to a low of 16.203 and recovered on Friday to close the week at 16.658.4, down 3.58 per cent.
The week ahead: The break below the 200-DMA last week strengthens the bearish case for Nifty. Cluster of resistances are poised in between 16,800 and 17,000. Resistance above 17,000 is at 17,200. The chances are high for the upside to be capped anywhere in the 16,800-17,000 region. As such we expect the Nifty to reverse lower again and fall-back to 16,400-16.200 levels in the near term. In case Nifty breaks above 17,000, an extended rise to 17,100-17,200 is possible and not more than that. Nifty must rise past 17,200 decisively in order to ease the downside pressure and turn the outlook positive. But that is unlikely as seen from the price action on the charts.
Medium-term outlook. We retain our bearish medium-term view intact. The fall below the 200-DMA and the case of a double-top formation strengthened the bearish case. A decisive weekly close below 16.400 will confirm the double-top pattern on the chart. In that case, the Nifty can test 16,000 initially. An eventual break below 16,000 will then pave the way for our long-awaited fall to 15,000-14,500. It is important to note that below 15,000 we will start looking at the market from the buy side rather than becoming more bearish at that point of time. We reiterate from our yearly outlook that Nifty can find a bottom anywhere in the broad 14,500-13,000 region. We continue to hold on to this view.
Trading strategy: Traders can make use of a rise and go short at 16,760 and accumulate shorts at 16,840 and 16,960. The average entry level will then be at 16,853. Keep the stop-loss at 17,170. Trail the stop-loss down to 16,620 as soon as the index moves down to 16,430. Move the stop-loss further down to 16,410 as soon as the index touches 16,340. Exit the shorts at 16,280.
Sensex (55,858.52):
Sensex tumbled to a low of 54,383.2 on Thursday and has recovered some of the loss on Friday. The fall last week has dragged the index decisively below the 200-DMA, currently at 56,601. Sensex has closed the week 55,858.52, down 3.41 per cent.
The week ahead: Cluster of resistances are poised in the broad 56,000-57,500 region. Within that the 200-DMA at 56,601 will be an important and strong resistance to watch this week that can cap the upside. As such any rise in the coming week will be short-lived and we can expect the Sensex to reverse lower again towards 55,000-54,000 in the short-term.
A strong rise past 57,500 is necessarily needed to ease the downside pressure and take the Sensex up to 59,000 levels again. But such a strong rise is unlikely on the back of the ongoing geo-political tensions.
Medium-term outlook: The medium-term bearish view remains intact. A decisive weekly close below 55,000 will increase the downside pressure and pave way for our medium-term target level of 52,000. A corrective bounce from 52,000 towards 55,000 is possible before the fall steepens. As mentioned in our yearly outlook 48,000-46,000 will be the region on the downside where Sensex can see a bottom.
Nifty Bank (36,430.75)
As expected, the Nifty Bank index broke its 36,375-38,425 range on the downside. The index fell to a low of 34,991.35 last week and has risen back well from there. It has closed at 36,430.75, down 3.11 per cent.
Though the Nifty Bank index is back into its previous sideways range, it is less likely to sustain higher. Strong resistance is at 36,800 which is expected to cap the upside this week. While below 36,800, the outlook is bearish to test 35,000 on the downside again. The level of 35,000 is a strong support. A break below it will drag the index down to 34,500-34,000 going forward.
Trading Strategy: Traders can go short at current levels and accumulate at 36,750. Keep the stop-loss at 37,550. Trail the stop-loss down to 36,380 as soon as the index falls to 35,700. Move the stop-loss further down to 35,900 as soon as the index touches 35,400. Book profits at 35,100.
Global cues
As expected, the Dow Jones Industrial Average (34,058.75) broke below the key level of 34,000 last week. The index made a low of 32,272.64. However, it managed to rise back sharply from this low and recover almost all the loss and close the week on a flat note. It is important to see if the Dow can sustain above 34,000 and see a strong follow-through towards 35,000 and higher. Inability to sustain above 34,000 can drag the index down to 33,000 and 32,000 again this week. Broadly, it is a wait and watch situation for the Dow.
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