Nifty 50 and Sensex are looking weak and bearish in the short term. The benchmark indices witnessed a sharp fall last week thereby snapping the three-week post Budget rally. The Sensex and Nifty fell breaking below their key supports that we had expected to hold. Both the indices were down over 2.5 per cent last week.

The weakness in the US markets coupled with the fall in the Nifty Bank index had dragged the benchmark indices lower. Overall, the sentiment is negative for the equities as a result of the high inflation data release from the US recently. This leaves the market worried that the US Federal Reserve will continue to retain its aggressive stance on rate hikes. As such, Nifty and Sensex will have more room to fall from the current levels in the coming week.

All the sectoral indices closed in red last week. The BSE Realty index, down 5.72 per cent, was beaten down the most. This was followed by the BSE Metals and BSE Power index, both down over 3 per cent.

Watch the FPIs

The Foreign Portfolio Investors (FPIs) were net sellers of Indian equities last week. However, the quantum of selling was low and about $37 million. It is to be noted that the FPIs had pumped in about $927 million in the week earlier. So, the FPI action in the coming weeks will need a close watch. If they buy again and does not sell more, then that would indicate that the FPIs are buying the dips in the Indian market. This will be a positive signal from a long-term perspective.

Nifty 50 (17,465.80)

Nifty began the week on a negative note and remained weak all through the week. The index fell sharply breaking below the key support level of 17,700 as against our expectation. This has negated the chances of rising above 18,000-18,200 that we had been expecting. However, the chances are not completely ruled out. Nifty has closed the week at 17,465.80, down 2.67 per cent.

The week ahead: The short-term outlook is negative. Nifty can fall further to test 17,370 – the 200-Day Moving Average (MA) first. A break below it can drag it further lower to 17,300 and even 17,200 this week.

The levels of 17,300 and 17,200 are very important supports. We can expect the Nifty to bounce back again from this support zone. Such a bounce can take the Nifty up to 17,500-17,600 again.

But in case the Nifty breaks below 17,200, it can fall to 17,000-16,900. The price action around 17,300-17,200 will need a close watch. For now, the preference will be to see a bounce from 17,300-17,200 support zone to 17,500-17,600 in the short term.

Graph Source: MetaStock

Graph Source: MetaStock

Medium-term outlook: The index has come into the key 17,500-17,300 support zone. As mentioned above, 17,300-17,200 are crucial supports. A strong bounce from this support zone will keep intact the overall bullish view. So, as long as the Nifty stays above 17,200, we retain our bullish view of seeing 19,500 first and then 20,000-20,500 eventually in the coming months.

May be that this rally might take more time than we had anticipated. Because there is a possibility of seeing a wide sideways range of 17,200-18,200 for some months before the Nifty starts to target higher levels.

The bullish view will come under threat on a sustained fall below 17,000. We will have to wait and watch if that is happening or not.

Sensex (59,463.93)

Contrary to our expectation, Sensex fell breaking the support at 60,500. Indeed, the index has tumbled below the psychological 60,000-mark and closed on a weak note. Sensex has closed the week at 59,463.93, down 2.52 per cent

The week ahead: The near-term outlook is negative. Immediate support is at 59,230. A break below it can drag the Sensex down to 58,700 and 58,400 – the next important supports. A fall beyond 58,400 looks less likely. We prefer the Sensex to bounce back from the 58,700-58,400 support zone and rise to 60,000-60,500, going forward.

In case Sensex breaks below 58,400, the downside can extend up to 58,000 and even lower.

Graph Source: MetaStock

Graph Source: MetaStock

Medium-term outlook: The region around 58,000-57,500 is a very strong support zone for the Sensex. As long as the index sustains above this support zone, the overall bullish outlook will remain intact.

As such, we retain our bullish view of Sensex targeting 64,000 initially and then 65,000-66.000 eventually from a long-term perspective.

This bullish view will get negated only if the Sensex breaks below 57,500 decisively. In that case, 57,000 and lower levels can be seen which in turn will turn the picture bearish.

Supports to watch
17,300-17,200 on the Nifty
58,700-58,400 on the Sensex
39,300-39,200 on the Nifty Bank
Nifty Bank (39,909.40)

As expected, the Nifty Bank index had declined sharply breaking below the crucial support at 41,000. The index was down 3 per cent for the week. This continues to keep the overall picture weak.

Graph Source: MetaStock

Graph Source: MetaStock

Support for the Nifty Bank index is at 39,300-39,200 which can be tested this week. The price action thereafter will need a close watch. If the index manages to bounce from the 39,300-39,200 support zone, it can ease the downside pressure. In that case, a relief rally to 41,000 is possible. It will also keep the chances alive of revisiting 42,000 levels again.

However, the bigger picture is still weak. On the weekly chart, the Nifty Bank index looks vulnerable to fall even up to 38,000 on the downside. So, the price action around 39,300-39,200 will need a close watch going forward.

Dow Jones (32,816.92)

The Dow Jones Industrial Average has broken its 33,500-34,500 range on the downside contrary to our expectation. That break has dragged the index down towards 32,800 as was mentioned last week. As such, the rise to 35,500 that we have been expecting is not happening now.

Graph Source: MetaStock

Graph Source: MetaStock

The short-term outlook is bearish. The Dow Jones has room to fall further towards 32,000. Thereafter, a bounce back to 33,000-33,500 is possible. In that case, the index can oscillate in a wide range of 32,000-34,500 for a few months.

If the Dow Jones breaks below 32,000, the downside can extend up to 31,000.