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The Indian benchmark indices snapped two weeks’ recovery and fell sharply last week. Barring the strong gap-up open for the week, both Sensex and Nifty 50 remained under pressure all through the week. The sell-off intensified on Friday as both the indices fell over 1.5 per cent each on the final trading day of the week. Sensex and Nifty 50 have closed 3 per cent down each for the week.
Barring the BSE IT (up 1.78 per cent) index, all other sectoral indices ended the week in red. The BSE Realty fell the most by 7.48 per cent followed by the BSE FMCG index, down 4.4 per cent for the week. The BSE Metals, BSE Bankex, BSE Auto and BSE Oil and Gas indices were down over 3 per cent each last week.
Foreign Portfolio Investors (FPIs) were net sellers of Indian equities last week. They had sold $728.14 million in the equity segment. For the month of December, FPIs have sold $1.72 billion in Indian equities.
The outcome of the US Federal Reserve meeting on Wednesday last week did not have a major impact on the global equities. The Fed, as expected, announced an increase in the pace of the stimulus taper. The central bank will now cut down the asset purchase by $30 billion per month from January. It has also hinted at three rate hikes in 2022.
Nifty 50 (16,985.2)
Nifty opened the week with a wide 107 points gap-up at 17,619.1 on Monday. However, it failed to get strong follow-through buyers and fell sharply from the high of 17,534.35. The index tumbled 263 points on Friday to close the week below the psychological level of 17,000. Nifty has closed the week at 16,985.2, down 3 per cent.
The week ahead: The extension of the corrective rally towards 17,800 mentioned last week has not happened. Contrarily, the expected fall-back has happened from around 17,500 itself. The outlook is bearish. Nifty can test 16,800-16,700 this week. Immediate support is at 16,900. A break below it can trigger the above mentioned fall. Resistance for the week will be in the 17,300-17,400 region.
Medium-term outlook: The 17,500-17,600 resistance region itself has held very well. This keeps the broader bearish view intact. As we have been indicating over the last few weeks, Nifty can fall to 16,300-16,000 initially. A corrective bounce to 16,500-16,800 thereafter cannot be ruled out. However, the picture continues to remain weak and the index can eventually test 15,500 and even 15,000 over the medium term. The chances of the fall extending up to 14,000 will have to be seen. However, from a long-term perspective, one must start looking at the Nifty from the buy side when the index falls to 15,000-14,000 levels.
Trading strategy
Hold the short positions taken at an average level of 17,208 with a stop-loss at 17,830. Follow the same strategy as mentioned last week. Trail the stop-loss down to 17,050 when the Nifty touches 16,600. Move the stop-loss further down to 16,700 when the index falls to 16,400. Book profits at 16,200.
Sensex (57,011.74)
Sensex broke above 59,000 as expected but failed to sustain. The index rose to a high of 59,203.37 on Monday and fell back sharply to close the week 3.02 per cent lower at 57,011.74.
The week ahead : Inability to sustain the break above 59,000 indicates lack of fresh buyers in the market. This leaves the outlook bearish. 59,000-59,500 will be a strong resistance zone now. Sensex is more likely to fall below 57,000 and fall to 56,000-55,000 this week
Medium-term outlook : The broad 59,000-60,000 resistance zone that we have been mentioning over the last couple of weeks has held very well, in line with our expectation. This keeps intact our broad medium-term bearish view of seeing 54,000 and even 52,000 on the downside in the coming months.
Nifty Bank (35,618.65)
The Nifty Bank index broke above 37,200 as expected but did not extend the rise up to 38,000 as was mentioned last week. The index made a high of 37,580 on Friday and tumbled from there to close 4 per cent down for the week at 35,618.65.
The index is now poised just below the crucial 200-Day Moving Average (DMA) support at 35,730. Any strong bounce above 36,000 from here is likely to face resistances in the 36,600-36,700 region first and then at 37,200.
The broader view is bearish. Nifty Bank index can fall to 34,900-34,750 initially in the coming weeks and then to 34,000 eventually.
Trading strategy
The revised stop-loss of 37,300 on the short-position recommended at 36,678 has been hit. We prefer to stay out of the market for some time. However, any bounce in the coming days will be a good opportunity to go short again. Traders can initiate fresh short positions at 36,500 and at 37,200. Stop-loss can be placed at 38,200 for the target of 35,150.
Global cues
The Dow Jones Industrial Average (35,365.44) fell to test 35,500-35,250 support zone initially last week. Though the index recovered sharply after the outcome of the US Fed meeting on Wednesday, it failed to sustain higher. The Dow Jones made a high of 36,189 on Thursday and fell back sharply again, giving back all the gains. The index has closed at 35,365.44, down 1.68 per cent for the week.
The Dow seems to be struggling to breach 36,000 decisively over the last two weeks. The price action on the charts leaves the near-term outlook mixed. The index has equal chances of either moving up towards 36,500-37,000 or fall to 34,000 from current levels. As such, we will have to wait and watch price action in the initial part of the coming week to get a clear cue on the direction of move. Overall, 34,000-37,000 could be the broad range within which the Dow can oscillate over the next few weeks.
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