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Sensex and Nifty 50 continued to move up in the beginning last week. The expected reversal happened on the final trading day of the week. We had cautioned for a reversal in the Nifty from 17,900 and in Sensex from 60,350. This turn-around has happened from a slightly higher level of 17,992 on the Nifty and 60,411 on the Sensex. The strong reversal on Friday gives an early sign of a top being in place. A further fall from here will confirm the same. As such, the price action for the rest of the month will need a close watch. It will aid to gauge whether this pull-back is just a correction within the overall uptrend or is a trend reversal.
Among the sectors, the BSE Power index outperformed by surging 3.7 per cent last week. The BSE Metal index, down 1.86 per cent, fell the most last week.
FPI flows
The Foreign Portfolio Investors (FPIs) seems to have accelerated their purchase in the Indian equities. Last week, they had bought $2.76 billion in the equity segment. The month of August has seen a total inflow of $5.6 billion into the equity segment. This is a positive factor that can limit the downside in the benchmark indices.
Nifty 50 (17,758.45)
The rally in the Nifty continued initially last week, but failed to breach the psychological level of 18,000. The index made a high of 17,992.2 on Friday and fell sharply giving back almost all the gains. Nifty has closed the week marginally higher by 0.34 per cent at 17,758.45.
Chart Source: MetaStock
The week ahead: Near-term outlook is negative. Immediate support is at 17,635. Next supports are at 17,475 and 17,450. Nifty has to necessarily hold above 17,450 to keep the current uptrend alive. A bounce from around 17,450 can take it back up to 18,000. However, to gain fresh momentum, Nifty has to breach 18,000. Only in that case, the chances of a rise to 18,100 and 18,400 will re-emerge.
If Nifty breaks below 17,450, the downside pressure will increase. Such a break can drag it down to 17,200-17,160. We expect the Nifty to break 17,450 and fall to 17,200-17,160 in the near term.
Medium-term outlook: The reversal from near 18,000 is very crucial from a medium-term perspective. This keeps the overall downtrend — that has been in place since October last year — intact. However, the 17,200-17,160 support mentioned above is very important to watch.
A strong break below 17,160 will confirm the medium-term bearishness. In that case, a steeper fall to 16,500 can be seen in the coming weeks. It will also bring back the danger of seeing 15,000-14,500 on the downside into the picture. The price action around 17,200-17,160 will need a close watch in the coming days.
Nifty has to see a strong weekly close above 18,000 to confirm the bullishness.
Trading strategy: The medium-term short positions recommended at 17,750 and 17,850 have got triggered. The average entry is at 17,800. Retain the stop-loss at 18,220. Move the stop-loss down to 17,600 as soon as the index moves down to 17,300. Exit 30 per cent of the holdings at 16,600 and move the stop-loss for the rest of the holdings up to 17,100.
Sensex (59,646.15)
The break above the crucial resistance level of 60,350 did not sustain. Sensex made a high of 60,411.2 on Friday and gave back all the gains to close the week marginally higher. It has closed the week at 59,646.15, up 0.31 per cent.
Chart Source: MetaStock
The week ahead: The psychological level of 60,000 can be an immediate resistance. Immediate support is at 58,700. A deeper support is at 58,500. Sensex can fall to 58,700-58,500 this week. A bounce from the 58,700-58,500 support zone can take the index back to 59,500-60,000.
But a decisive break below 58,500 will be bearish to break 58,000 and fall to 57,500-57,200 in the short term.
Sensex will regain bullish momentum only if it makes a strong weekly close above 60,350. In that case a rise to 61,000 and higher levels can be seen thereafter.
Medium-term view: The region between 57,200 and 57,000 is a crucial support zone from a medium-term perspective. Sensex has to sustain above 57,000 to keep the current uptrend alive.
A break below 57,000 will be bearish. It can then drag it down to 56,000 and 55,000 initially. That in turn will also bring back the danger of seeing 50,000-48,000 on the downside. So the price action around 57,000 will now need a close watch.
Nifty Bank (38,985.95)
The expected rise to 40,100-40,200 mentioned last week seems to be not happening. The Nifty Bank index rose to a high of 39,759.15 and then fell sharply giving back all the gains. The index has closed at 38,985.95, down 0.14 per cent for the week.
Immediate support is at 38,550. A break below it can drag the index down to 37,861 – the 21-Day Moving Average (DMA). A further fall below 37,861 can take it down to 37,775. Failure to see a strong bounce from 37,775 will be very bearish. A break below it will see the Nifty Bank index tumbling towards 37,000 in the next few weeks.
Key resistance to watch is at 40,100-40,200. A strong rise past 40,200 is needed to regain the bullish momentum. Only in that case, the chances of a rise to 42,000 will come into picture.
Trading strategy: The trailing stop-loss at 39,800 on the long positions taken at 37,491 has been hit. We prefer to stay out of the market this week.
Global cues
The rally in the Dow Jones Industrial Average (33,706.74) that has been in place since July seems to be losing steam. The index failed to sustain the break above 34,000 witnessed last week. It made a high of 34,281.36 on Tuesday, but gave back all the gains thereafter. The Dow has closed at 33,706.74, down 0.16 per cent for the week.
A fall to 33,100-33,000 looks likely this week. It has to bounce back sharply from 33,000 and break above 34,000 decisively to retain the bullish sentiment. In that case, a rise to 34,700 is possible. But, if the Dow breaks below 33,000, it can come under more pressure. In that case, an extended fall to 32,600 and 32,350 can be seen.
Overall, the price action around 33,100-33,000 will need a very close watch this week.
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