Technical Analysis

Index Outlook: Will Sensex, Nifty 50 ‘crack’ ahead of Diwali?

Gurumurthy K | | Updated on: Oct 30, 2021

Bull and bear , symbolic beasts of market trend | Photo Credit: GlobalStock

Early signs have emerged for a potential steeper correction

The Indian benchmark indices began the week on a positive note by recovering some of the loss made in the week earlier. But lack of strong follow-through buying halted the bounce-back and triggered a sharp fall towards the end of the week. Both Sensex and Nifty fell below their key support levels of 60,500 and 17,940 respectively and have closed on a weak note. Sensex was down 2.49 per cent and Nifty was down 2.45 per cent for the week.

Among the sectoral indices, the BSE Power index fell the most by 4 per cent. It was followed by the BSE Bankex and BSE Oil and Gas indices. Both were down over 3 per cent each.

The coming week is truncated, with just three trading days. Indian markets are closed on Thursday and Friday for Diwali. So, the Indian markets would have the impact of the US Federal Reserve’s meeting outcome due on Wednesday night in the next week only.

Although a slight recovery and a consolidation is possible in this truncated week, the broader picture has turned weak and the chances are high for a further fall in the weeks after Diwali, if not immediately.

Foreign outflows

A strong sell-off from Foreign Portfolio Investors (FPIs) weighed on the indices. Data from the National Securities Depository Limited show that FPIs sold $1.497 billion in the equity segment last week. This is the highest weekly outflow since May last year. If the FPIs continue to sell further, Sensex and Nifty are likely to fall further.

Nifty 50 (17,671.65)

The support at 17,960 mentioned last week held initially. Nifty 50 saw a bounce from 17,970 early on. But the index failed to sustain higher and fell sharply towards the end of the week, breaking below the 17,960-17,940 support zone. It tumbled to a low of 17,613 before closing the week down by 2.45 per cent at 17,671.65.

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The week ahead: Immediate support is at 17,500. This is likely to hold on its first test and a bounce-back move to 18,000 or 18,200 is possible in the near term. The index is likely to trade in the 17,500-18,200 range this week. The broader bias is going to remain weak. As such, a break above 18,200 looks less likely and the chances are high for the Nifty to break 17,500 and fall further possibly in the upcoming weeks after Diwali.

Medium-term outlook: Early signs have emerged on the charts for a steeper correction within the medium-term uptrend. The expected break below 17,500 mentioned above can trigger a steeper fall to 17,350 and 17,000 — an important medium-term support. Nifty has to hold above 17,000 to keep the uptrend intact. A break below 17,000 will indicate a trend reversal and drag it to 16,700 and then even to 16,300-16,000. The price action at 17,000 will need a close watch.

Sensex (59,306.93)

Sensex attempted a bounce-back towards 62,000 as expected. But lack of strong follow-through buying dragged the index from the high of 61,577 to close the week below the psychological level of 60,000. Sensex has declined 2.49 per cent last week.

The week ahead : Immediate support is at 59,000. If the index manages to bounce from there, a corrective rise to 60,500-61,000 is possible. For this week, 59,000-61,000 can be the range of trade. However, on the charts, the chances are less to see a strong rise past 61,000. So, the probability is high for the Sensex to break 59,000 eventually in the coming weeks.

Medium-term outlook : A steeper correction within the medium-term uptrend will come into play on a break below 59,000. The next targets will be 58,000 and 57,000. As mentioned last week, the medium-term uptrend will come under threat only on a break below 57,000. Such a break will indicate a reversal and drag the Sensex to 56,000-55,000. As such, the price action at 57,000 will need a close watch to see if the index can bounce back strongly from there.

Nifty Bank (39,115.6)

The Nifty Bank index began the week on a positive note. It broke above the key resistance level of 40,800 and surged to a high of 41,828 on Monday. After remaining stable above 40,800 for the next couple of days, the index lost steam and tumbled to close the week down by 3 per cent. The long positions recommended last week have got stopped.

Immediate resistance for the week is at 39,375 and then a cluster of resistances are in the 40,000-40,200 region. A strong rise past 40,200 is now needed to bring back the bullishness. Support is at 38,400. It being a truncated week, the chances are high for the index to hold above 38,400 and consolidate in the range of 38,400-40,200. However, as long as the index stays below 40,200, the bias is bearish. As such, the chances are high for it to break 38,400 eventually. Such a break can drag it to 37,890 initially and then to 37,270 eventually.

Traders can wait for rallies and go short at 39,350 and accumulate shorts at 40,000. Stop-loss can be placed at 40,400. Book partial profits at 38,450 for 30 per cent of the holdings and trail stop-loss down to 39,150 for the rest of the positions. Move the stop-loss further down to 38,600 as soon as the market moves down to 38,100. Exit the rest of the positions at 37,950.

G lobal cues

The Dow Jones Industrial Average (35,819.56) fell sharply on Wednesday but then managed to recover all the losses thereafter. The index bounced back from the low of 35,490 to close the week marginally higher by 0.4 per cent at 35,819.56. Crucial resistance for the index is at 36,000-36,200, which will have to be broken in order to see a fresh rally. Inability to break 36,200 can drag the Dow to 34,000 again and keep it in the range of 34,000-36,200.

Published on October 30, 2021
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