Indian indices started the week on a positive note, recovering some of the losses incurred in the previous week. But the lack of strong follow-up buying halted the recovery and led to a sharp drop at the end of the week. Sensex and Nifty both fell below key support levels at 60,500 and 17,940 respectively and closed on a weak note. Sensex shares are down 2.49 percent and Nifty 2.45 percent during the week.
Among the sectoral indices, the BSE Power fell 4 percent. It was followed by the BSE Bankex and BSE Oil and Gas Index. Both are down more than 3 percent each.
The next week is deducted with only 3 trading days. Indian markets are closed on Thursday and Friday for Diwali. Therefore, the Indian markets will have an impact on the outcome of the US Federal Reserve meeting scheduled for Wednesday evening next week only.
Although a slight recovery and consolidation is possible in this clipped week, the broader picture is turning weak and chances are high for a further decline in the weeks following Diwali, if not immediately.
Strong selling from foreign portfolio investors (FPIs) weighed on the indices. Data from National Securities Depository Limited shows that FPIs sold $1.497 billion in the equities sector last week. This is the highest weekly flow since May last year. If FPI continues to sell further, Sensex and Nifty will likely fall further.
Nifty 50 (17,671.65)
The 17,960 mentioned support held last week initially. Nifty 50 saw a bounce from 17,970 early on. But the index failed to sustain its rally and fell sharply at the end of the week, breaking below the 17960-17940 support area. It fell to 17,613 before closing the week 2.45 percent lower at 17,671.65.
next week: Immediate support at 17500. This is likely to continue in the first test and a retracement move to 18000 or 18200 is possible in the near term. The index is likely to trade in the 17500-18200 range this week. The broader bias will remain weak. As such, a break above 18200 looks less likely, and chances are high for Nifty to break 17500 and fall further in the coming weeks after Diwali.
Medium term outlook: There are early signs on the charts of a sharper correction within the medium term uptrend. An expected break below 17,500 mentioned above could lead to a sharp drop to 17,350 and 17,000 – an important medium-term support. Nifty must hold above 17,000 to keep the uptrend intact. A break below 17000 will signal a trend reversal and a pull back to 16700 and then even to 16300-16000. Price action at 17,000 will need to be watched closely.
Sensex attempted to rebound towards 62000 as expected. But the lack of a strong follow-up to buy pushed the index from the highest level at 61,577 to close the week below the psychological level of 60,000. The Sensex fell 2.49 percent last week.
next week: immediate support 59000. If the index can rebound from there, a corrective rise to 60500-61000 is possible. For this week, 59000-61000 could be the trade range. However, on the charts, the chances are less to see a strong rally above 61,000. So, the probability is high that Sensex will eventually break 59,000 in the coming weeks.
Medium term outlook: A sharper correction within the medium term uptrend will come into play on the break below 59,000. The next targets will be 58000 and 57000. As we mentioned last week, the medium term uptrend will only be threatened on a break below 57000. It will indicate like this The breakout to a reversal and the pull of the Sensex to 56000-55000. As such, the price action at 57000 will need to be watched closely to see if the indicator can bounce back strongly from there.
Nifty Bank (39,115.6%)
Nifty Bank started the week on a positive note. It broke above the key resistance at 40.800 and rose to a high of 41828 on Monday. After remaining stable above 40,800 in the next two days, the index lost ground and retreated to close the week 3 percent lower. The recommended long trades were stopped last week.
The immediate resistance for this week is at 39375 and then a range of resistance in the 40,000-40,200 area. A strong rally beyond 40200 is now needed to bring the upside back. The support is at 38400. As it is a truncated week, the chances of the index are high to consolidate above 38400 and consolidate in the range of 38400-40200. However, as long as the index remains below 40200, the bias is bearish. As such, the odds are high for the 38,400 to eventually break. Such a break could drag it to 37,890 initially and then to 37,270 eventually.
Traders can wait for a rally, sell at 39,350 and accumulate short positions at 40,000. The stop loss can be placed at 40,400. Record partial profits at 38,450 for 30 percent of holdings and follow the stop loss to 39,150 for the rest of the trades. Move the stop loss order down to 38,600 once the market moves down to 38,100. Exit the rest of the positions at 37950.
The Dow Jones Industrial Average (35,819.56) fell sharply on Wednesday but then managed to recover all the losses after that. The index rebounded from a low of 35490 to close the week with a marginal increase of 0.4 percent at 35819.56. The critical resistance for the indicator is at 36000-36200, which must be broken to see a new high. Not being able to break 36200 could pull the Dow back to 34,000 again and keep it in the 34,000-36,200 range.