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The Indian benchmark indices began the week on a weak note. Both Sensex and Nifty 50 tumbled over 3 per cent intraday on Monday, threatening a steeper fall. However, both the indices managed to recover all the loss thereafter and close the week marginally higher. The pull-back from Friday’s high indicates the presence of fresh sellers in the market at higher levels. On the charts, there is room for both the Sensex and Nifty to see a Santa Claus rally if they manage to sustain above their immediate support. However, the broader picture remains weak and the rise from here will be short-lived. As such, we can look for a further fall as we enter into the new year 2022.
Foreign Portfolio Investors (FPIs) continue to remain net sellers of Indian equities. They sold $573 million last week in the equity segment. In December, they have sold $2.36 billion so far.
Nifty 50 (17,003.75)
Nifty 50 tumbled to a low of 16,410.2 on Monday but had risen back well from there to recover all the loss. The index made a high of 17,155.6 on Friday and had come off from there to close marginally up by 0.11 per cent for the week at 17,003.75,
The week ahead: Immediate support for the Nifty is at 16,900. If it manages to sustain above this support and breach 17,150, a rise to 17,350-17,400 can be seen. A further break above 17,400 will pave the way for an extended rally to 17,500-17,650. The levels of 17,400, 17,500 and 17,650 are strong resistances that can halt the rise. If Nifty manages to rise, it is however more likely to reverse lower anywhere from the 17,400-17,650 region and see a fresh fall to 17,000 and 16,500 eventually, going forward.
In case Nifty fails to break above 17,150 in the coming days, it can remain under pressure to break below 16,900. Such a break can drag it down to 16,700 and 16,500 again.
Medium-term outlook: The medium-term view remains bearish. Nifty has to rise past 17,650 to turn the outlook bullish. But that looks less probable on the charts now. As long as Nifty remains below 17,650, the chances are high for it to test 16,000-15,900 in the coming weeks. From a bigger picture, a break below 15,900 can see the Nifty tumbling towards 15,500-15,000 and even lower in the coming months. As mentioned last week, the chances of the fall extending up to 14,000 cannot be ruled out and will have to be seen. However, from a long-term perspective we will be approaching the market from the buy side as the Nifty reaches 15,000-14,000 levels, rather than becoming extremely bearish at that time.
Trading strategy: Short positions can be taken at three different levels. Go short with 20 per cent of the intended amount at current levels. Accumulate shorts for another 30 per cent at 17,350 and the balance 50 per cent at 17,580. So, the average entry level would be at 17,396. Keep the stop-loss at 17,820. Trail the stop-loss down to 16,920 as soon as the index moves down to 16,810. Move the stop-loss further down to 16,860 when Nifty touches 16,740. Book profits at 16,320. Traders who intend to take this short position will have to wait patiently as the market could remain stable for a week or two on account of the year-end holiday season.
Sensex (57,124.31)
The fall to 56,000-55,000 mentioned last week happened much faster than we had expected. Sensex tumbled to a low of 55,132.68 on Monday but then managed to recover all the loss over the rest of the week. The index made a high of 57,623.69 on Friday and fell back from there to close the week at 57,124.31, up 0.2 per cent for the week.
The week ahead : Immediate support for the Sensex is at 56,500. If it manages to sustain above this support, a rise to 58,500-59,000 is possible this week. However, a rise past 59,000 is less likely and the index is likely to reverse lower again, targeting 55,000 on the downside in the coming weeks. On the other hand, if Sensex breaks below 56,500 from here itself, it can revisit 55,000 levels this week itself. It will also keep the index under pressure to see much lower levels as we enter into the new year.
Medium-term outlook: The medium-term outlook will remain bearish as long as Sensex remains below 59,000-60,000. We retain our view of seeing 54,000-52,000 on the downside in the coming months. The chances of the fall extending up to 50,000-48,000 cannot be ruled out. However, such a steeper fall will be a good buying opportunity next year.
Nifty Bank (34,857.05)
The fall to 34,000 has happened much faster than we had anticipated. The Nifty Bank index tumbled 4.5 per cent intraday last Monday to make a low of 34,018.45. Though it managed to recover well from that low for the rest of the week, the pull-back on Friday indicates lack of strong follow-through buyers in the market. The Nifty Bank index rose to 35,477.3 on Thursday and had come off from there to close at 34,857.05, down 2.14 per cent for the week.
The broader bearish view is intact. The 200-Day Moving Average (DMA) at 35,710 can now act as a good support-turned-resistance. The next strong resistance will be in the 36,000-36,350 region. A consolidation between 34,000 and 36,000 is a possibility for a week or two. Thereafter, the index is more likely to break 34,000 and a fresh fall to 32,500-32,000 can be seen as we head into the new year 2022. Intermediate support will be at 33,500.
Trading strategy: We suggest taking positional trades at this point of time. Go short now for 30 per cent of the intended amount. Accumulate another 30 per cent shorts on rallies at 35,600 and then remaining 40 per cent at 36,150. The average entry of this trade will then be at 35,597. Stop-loss can be placed at 36,660. Trail the stop-loss down to 35,200 as soon as the index falls to 33,700. Move the stop-loss further down to 33,600 as soon as the index touches 32,950. Book profits at 32,750.
Global cues
The Dow Jones Industrial Average (35,950.56) continues to remain volatile within its broad range. It fell sharply to a low of 34,665.5 on Monday and rose back sharply for the rest of the week and closed 1.65 per cent higher. As mentioned last week, 34,000-37,000 will be the range of trade. Within this range, the chances of testing 37,000 look likely in the coming weeks before a reversal is seen. A strong break above 36,000 can trigger this rise.
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