Technical Analysis

Will Sensex and Nifty slip further?

Gurumurthy K BL Research Bureau | Updated on November 20, 2021

A head and shoulder pattern on the chart does not rule out the danger of a steeper fall

The caution flagged before Diwali in this column has been borne out. Both Sensex and Nifty 50 had witnessed some recovery in the first two weeks of this month. Thereafter the fall last week indicates that the corrective fall that had begun from the October highs of 18,604.45 on the Nifty and 62,245.43 on the Sensex is intact. Crucial support is coming up for the Sensex and Nifty at 59,000 and 17,500-17,450 respectively. The indices will come under danger for a much steeper fall on a break below these supports. So, the price action in the coming weeks will need a close watch.

Sensex and Nifty have closed lower by 1.73 per cent and 1.87 per cent respectively. Among the sectors, barring auto, power and healthcare, all others closed in the red. The BSE Metal index, down 5.84 per cent, tumbled the most last week. It was followed by the BSE Realty and BSE Oil and Gas indices that were down 4.1 per cent and 3.2 per cent respectively.

 

Nifty 50 (17,764.8)

Nifty 50 failed to get a strong follow-through rise last week. It made a high of 18,210 on Monday and fell sharply to break and close below 17,800 — the support that was holding well in the week earlier. Nifty has closed at 17,764.8, down 1.87 per cent.

The week ahead: An immediate support is at 17,700 which will need a close watch this week. If Nifty manages to sustain above this support, a bounce to 17,900-18,000 is possible. But 18,000-18,100 is a strong resistance that can cap the upside. As such, Nifty is likely to remain below 18,100 and be under pressure to break 17,700. The target on a break below 17,700 will be 17,500-17,450.

Medium-term outlook: The region between 17,500 and 17,450 is a strong support. A corrective bounce from this support zone towards 17,700-17,850 is a possibility. But on the charts, the break below 17,700 will indicate a complex head and shoulder reversal pattern on the daily chart. As such, the bounce from 17,500 can be capped at 17,700-17,850. A pull-back again from the 17,700-17,850 region will keep the broader outlook bearish to break below 17,450. Such a break can drag the Nifty to 17,000. Such a fall to 17,000 could be a good buying opportunity.

Trade strategy: Positional traders can make use of rallies to go short at 17,830 and accumulate shorts at 17,950. Keep the stop-loss at 18,120. Trail the stop-loss down to 17,760 as soon as the index moves down to 17,640. Book partial profits, for 40 per cent of your holdings at 17,530. Then move the stop-loss down to 17,660 for the rest of the short position. Exit the remaining 60 per cent of the holding at 17,230.

Sensex (59,636.01)

Sensex failed to break above the resistance at 61,000 last week. It made a high of 61,036.56 and has come off sharply to close below 60,000 last week. The index has closed at 59,636.01, down 1.73 per cent.

The week ahead: Inability to breach 61,000 and the subsequent fall below 60,000 last week keeps the bias bearish for Sensex. A test of 59,000 — the key short-term support — is possible this week. Whether Sensex manages to sustain above 59,000 or not is going to be crucial, going forward. If Sensex sustains above 59,000 it can see a consolidation between 59,000 and 60,000 for some time. But on the charts, the chances are looking high for the Sensex to break below 59,000 eventually, if not immediately.

Medium-term outlook: Sensex will now have to rise past 61,000 to bring back the bullishness. A range of 59,000-61,000 is possible for a few weeks if Sensex manages to hold above 59,000. But as mentioned above, the bias on the chart is bearish to see a break below 59,000. Such a break can drag the Sensex down to 57,000 — a crucial medium-term trend support. The price action around 57,000 will need a close watch. If Sensex breaks below 57,000, it can tumble towards 55,000. But for now, we expect 57,000 to hold and keep the medium-term uptrend intact.

Nifty Bank (38,926.25)

The Nifty Bank extended the fall in line with our expectation and has closed in the red for the second consecutive week. Indeed, it fell straight away towards 37,700 without seeing a corrective bounce from the 38,000-37,950 support zone. The Nifty Bank index made a low of 37,750 and bounced slightly from there to close the week at 37,926.25, down 2.08 per cent.

The trailing stop-loss placed at 38,400 on the short-positions taken at 39,675 has got hit on the intraday bounce seen from 38,000 on Wednesday.

For this week 38,000-38,050 is an immediate resistance. Next important resistance is at 38,300. If the index continues to trade below these resistances, the chances are high for it to fall further towards 37,000. The level of 37,000 is a strong support which can hold on its first test. The chances are high for the index to bounce back from 37,000 towards 38,000 or even higher in the coming weeks. The price action near 37,000 will need a close watch,

It is better to stay out of the market for a week or so. However, if you are a trader with a high risk appetite, take fresh short positions now and accumulate shorts at 38,150. Keep a tight stop-loss at 38,350 and book profits at 37,150. Trail the stop-loss down to 37,550 as soon as the index moves down to 37,350. We reiterate, this trade recommendation is only for those with high risk appetite.

Global cues

The Dow Jones Industrial Average (35,601.98) failed to break the resistance at 36,250 decisively last week. It made a high of 36,316.61 on Tuesday and has come-off sharply breaking below 36,000 again. The index has closed the week at 35,601.98, down 1.38 per cent.

Inability to breach 36,250 followed by a strong fall below 36,000 keeps the near-term outlook bearish. As long as the Dow stays below 36,000 the chances are high for it to fall towards 35,000 in the coming weeks. A bounce from around 35,000 can keep it in a range of 35,000-36,000 for some time. A strong break below 35,000 will then increase the danger of the fall extending up to 34,000. As such, the price action at 35,000 will need a close watch to see if the Dow is managing to bounce-back from there or not.

Published on November 20, 2021

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