Technical Analysis

Index Outlook: Will Sensex & Nifty 50 see greater fall?

Gurumurthy K |BL Research Bureau | Updated on: Mar 05, 2022

Risk aversion will keep the indices under pressure

The Indian benchmark indices remained stable and range-bound most part of the week. Sensex was holding above 55,000 and the Nifty 50 sustaining above 16,400. But the picture turned around on Friday as the indices broke below these levels and fell sharply to close the week on a weak note. Sensex tumbled to a low of 53,887.72 and recovered slightly from there to close the week at 54,333.81, down 2.73 per cent. Nifty fell to a low of 16,133.8 on Friday before closing at 16,245.35, down 2.48 per cent.

High risk aversion in the market on the back of the ongoing Russia-Ukraine war, surging crude oil prices and continuing sell-off from Foreign Portfolio Investors (FPIs) are continuing to keep the Indian benchmark indices under pressure. The FPIs were net sellers of Indian equities for the eighth consecutive week. They sold $2.53 billion last week. With this, FPIs have pulled out about $11.15 billion from Indian equities so far in this calendar year.

Technically, as mentioned last week, both the Sensex and Nifty falling below their 200-Day Moving Average (DMA), coupled with a double-top formation on the charts, is also adding pressure to the indices.

Among the sectors, the BSE Auto index (down 8.8 per cent) was beaten down the most last week, followed by the BSE Bankex (down 5.59 per cent). A sharp rise in base metals and oil prices aided the BSE Metals (up 8 per cent) and BSE Oil and Gas (up 4.86 per cent) indices to outperform others.

Nifty 50 (16,245.35)

The resistance at 16,800 has held very well last week as expected. Nifty rose to a high of 16,815.9 on Monday but failed to get a strong follow-through rise. The subsequent break below 16,400 towards the end of the week indicates the inherent weakness in the index and lack of strong buying interest in the market. As such, more fall is likely in the coming days.

The week ahead:  The outlook is bearish. Immediate resistance is in the 16,450-16,500 region. Above this 16,700-16,800 will be the next strong hurdle for the Nifty 50. Support is at 16,000. If Nifty manages to sustain above 16,000 it can rise to 16,500. A break above 16,500 will be difficult. But the upside will be capped at 16,700-16,800. The downside pressure will continue to remain. As such the chances are high for the Nifty to break 16,000 and fall to 15,800 in the short term. A break below 15,800, if seen immediately, can drag the Nifty down to 15,500.

Medium-term outlook: The broad 16,700-17,000 will now be a strong resistance zone while below 17,000 our overall bearish outlook is intact. As such the break below 15,800 mentioned above will pave the way for a test of 15,000 on the downside. A corrective bounce from 15,000 to 16,000 is a possibility. But the overall picture will continue to remain bearish. As such the bounce from 15,000 will be short-lived. An eventual break below 15,000 will see the Nifty falling to 14,000.

We reinstate that the Nifty can find a bottom anywhere between 14,500 and 13,000. As such when the Nifty falls below 15,000, we will start looking at the market from the buy side rather than turning extremely bearish at that point of time.

Trading strategy: Positional trades can be taken at this point of time. Wait for a rise and go short at 16,370. Accumulate shorts at 16,620 if Nifty rises above 16,400. The average entry level will then be at 16,495. Keep the stop-loss at 16,780. Trail the stop-loss down to 16,340 as soon as the index falls to 16,120. Move the stop-loss further down to 16,140 as soon as the Nifty touches 15,960.  Book profits at 15,820.

Sensex (54,333.81)

The broad 56,000-57,500 resistance zone mentioned last week had capped the upside very well in line with our expectation. The decisive weekly close below 56,000 strengthens the bearish case and opens the doors to see more fall, going forward.

The week ahead: Immediate resistance is at 55,000. Above this, 56,000-57,000 will act as a very strong resistance and cap the upside. A rise past 57,000 will be difficult in case the Sensex manages to break above 55,000 during the week. Support is at 54,000. The chances are high for the Sensex to break 54,000 and fall to 52,000-51,500 in the short term.

Medium-term outlook: Strong resistance is now in the 58,500-59,000 region. As long as the Sensex trades below 59,000, the medium-term bearish outlook will remain intact. Support is in the 52,000-51,000 region. A short-lived corrective bounce from this support zone towards 54,000 cannot be ruled out. But eventually, Sensex is expected to break 52,000 and fall to 50,000 and 48,000 in the coming months. From a long-term picture, 48,000-46,000 will be a strong support where Sensex can find a bottom and a fresh rally can begin.

Nifty Bank (34,407.8)

The Nifty Bank index remained under pressure all through the week. The index broke below the key support level of 35,000 and tumbled to a low of 34,094.10. It has closed the week at 34,407.8, down 5.55 per cent.

The outlook is bearish. Resistance for the week will be at 35,100 which can cap the upside. In case the index manages to break above 35,100, though less likely, a rise to 35,800-36,000 is possible.

Support is at 34,000 which has held well last week. However, the chances are high for the index to break 34,000 and fall further towards 33,000 and 32,500 in the coming weeks. From a bigger picture, strong support is in the 32,500-32,000 region and the current fall can halt here.

Trading strategy: Traders can go short at current levels and accumulate at 34,920. Keep the stop-loss at 35,700. Trail the stop-loss down to 34,450 as soon as the index falls to 33,600. Move the stop-loss further down to 33,900 as soon as the index touches 33,100. Book profits at 32,700.

Global cues

The Dow Jones Industrial Average (33,614.80) remained volatile in a sideways range all through last week. The index moved up and down between 33,100 and 34,200 in the past week. The bias remains bearish. Strong resistance is in the broad 34,000-35,000 region. As long as the Dow remains below this resistance zone the chances are high for it to break 33,000 and fall to 32,000 in the coming weeks. Important to note is that 32,000 is a strong support for the Dow which can limit the downside of the current fall. The price action around 32,000 will need a close watch.

What to watch
16,500-16,800 resistances on Nifty
55000-57000 resistances on Sensex
35,100-36,000 resistances on Nifty Bank
Published on March 05, 2022

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