Nifty 50 and Sensex were knocked down for the fourth consecutive week. Both the indices were down over 2 per cent each. Last week wesaid the benchmark indices can bounce back from their support. That view turned out to be wrong.
The fall last week confirms a head and shoulder pattern on the daily charts of the Sensex and Nifty. That leaves the short-term outlook bearish for the indices. It also keeps the door open for the indices to fall more in the short-term. A near-term recovery is a possibility, but that will be short-lived.
However, from a big picture, we could be in the last leg of this correction. We expect the Indian benchmark indices to resume their broader uptrend after this last leg of fall.
Dragging factors
Continuing foreign money outflow is one of the major factors that has been dragging the Indian markets down all through this month. The Foreign Portfolio Investors (FPIs) sold about $962 million in the equity segment last week. For the month of October, there has been a net outflow of about $10.21 billion.
The ongoing geopolitical tensions in West Asia and the uncertainty over the US Presidential Election outcome are also weighing on the equity markets. The election in the US will be held next week on November 5, 2024.
Sector Performance
All the sectoral indices were beaten down badly last week. The BSE Realty, BSE PSU, BSE Oil & Gas and the BSE Capital Goods indices tumbled over 7 per cent each. The BSE IT index, down 1.57 per cent was the least beaten among the sectors.
Nifty 50 (24,180.80)
Nifty failed to sustain the bounce that was seen at the beginning of the week. It touched a high of 24,978.30 and then fell sharply breaking below the support at 24,400. We had expected this support to hold. But that did not happen. Nifty made a low of 24,073.90 before closing the week at 24,180.80, down 2.71 per cent.
Short-term view: The outlook is bearish. Immediate support is in the 23,950-23,900 region which can be tested now. A bounce from there can trigger a recovery rally towards 24,500-24,600. But a rise past 24,600 is less likely as of now. It will need some strong positive trigger.
So, we expect the Nifty to reverse lower again from the 24,500-24,600 resistance zone and break below 23,900. Such a break can drag the Nifty down to 23,500 and even 23,000 in the short-term.
To avoid this fall to 23,500-23,000, Nifty has to sustain above 23,900 and breach 24,600.
Medium-term view: The broader trend is still up. The recent fall is a correction within that. The region around 23,000 is a strong support. We expect the current fall to halt there.
A fresh rise from around 23,000 will keep the overall uptrend intact. That leg of rally will have the potential to take the Nifty up to 26,000-27,000 over the medium-term.
In case the Nifty declines below 23,000, then there is a danger of seeing a steeper fall to 22,000-21,000.
Nifty Bank (50,787.45)
Nifty Bank index broke the resistance at 52,400 last week as expected, but did not sustain. It made a high of 52,577.50 and then fell sharply giving back all the gains. The index touched a low of 50,382.10 and closed the week at 50,787.45, down 2.51 per cent.
Short-term view: There is limited room seen for the Nifty Bank index to fall from here. Strong supports are there at 49,700 and 49,400. The index can fall to test these supports in the near-term.
But after this fall, the Nifty Bank index can reverse higher again. That reversal can take the index up to 51,000-52,000 again.
Medium-term view: There is no change in the big picture. The 49,650-54,470 range on the monthly chart remains intact. Also, there is a strong support around 49,000. So as long as the Nifty Bank index stays above 49,000, the long-term outlook is bullish. So a bullish breakout above 54,470 is likely to be seen eventually going forward. That break will open the doors for the Nifty Bank index to target 57,000-58,000 in the coming months.
The bullish view will go wrong only if the index breaks below 49,000. If that happens, we can see a fall to 47,000. But that looks unlikely.
Sensex (79,402.29)
Sensex fell last week breaking below the support at 80,300. It fell to a low of 79,137.98 before closing the week at 79,402.29, down 2.24 per cent.
Short-term view: The outlook is negative. Strong resistance is now in the 80,500-80,600 region. Immediate support is at 78,600. Any bounce from here will be capped at 80,600.
As long as the Sensex stays below 80,600, the outlook will remain negative. As such we can expect the Sensex to break the support at 78,600 eventually in the coming days. Such a break can drag the Sensex down to 77,500-77,000 in the short-term.
After this fall, a bounce back move to 80,000 is a possibility.
Medium-term view: The region around 77,000 is a strong support. The current fall can halt here and the broader uptrend is likely to resume thereafter. A fresh leg of rally from around 77,000 will have the potential to take the Sensex up to 88,000 in the coming months.
The index will come under pressure for more fall only if it breaks below 77,000. In that case, the downmove can extend to 75,000.
Dow Jones (42,114.40)
The Dow Jones Industrial Average snapped its six-week rally. The index failed to get a strong follow-through rise above 43,300 and fell sharply last week. It fell below 42,500, an intermediate support that we had expected to hold. The Dow Jones made a low of 42,051.39 on Friday before closing the week at 42,114.40. The index was down 2.68 per cent for the week.
Outlook: The broader uptrend is intact. The recent fall is a correction within that. A crucial support is at 41,800 which can be tested this week. A bounce from there will keep the broader uptrend intact. It will also keep the doors open for the Dow Jones to target 44,000-44,500 on the upside.
The uptrend will come under threat only if the index declines below 41,800. If that happens, the Dow Jones can fall to 41,000 and even lower. We will have to watch the price action around 41,800 very closely.
