The benchmark Indian indices cut short their two-week recovery and fell sharply last week. Except for this week’s strong open gap, both the Sensex and the Nifty 50 have remained under pressure all week. The selling intensified on Friday as both indices fell more than 1.5 percent each on the last trading day of the week. Sensex and Nifty 50 closed down 3 percent each for the week.
With the exception of the BSE IT Index (which rose 1.78 percent), all other sectoral indices ended the week in the red. The BSE Realty Index is down 7.48 percent, followed by the BSE FMCG Index, down 4.4 percent for the week. The BSE Metals, BSE Bankex, BSE Auto and BSE oil and gas indices have fallen more than 3 percent each week in the past week.
Foreign portfolio investors (FPIs) were net sellers of Indian stocks last week. They sold $728.14 million in the equity segment. For the month of December, FPIs sold $1.72 billion in Indian stocks.
The results of the US Federal Reserve’s meeting on Wednesday last week had little impact on global stocks. The Fed, as expected, announced an increased pace of tapering. The central bank will now reduce asset purchases by $30 billion per month from January. He also hinted at a tripling of prices in 2022.
Nifty 50 (16985.2)
Nifty opened the week by a massive 107 points at 17,619.1 on Monday. However, it failed to get strong buyers to follow and fell sharply from the high of 17,534.35. The index fell 263 points on Friday, to close the week below the psychological level of 17 thousand points. Nifty closed the week at 16985.2, down 3 percent.
next week: There was no extension of the corrective rally towards 17800 mentioned last week. By contrast, the expected pullback occurred from about 17,500 itself. The outlook is bearish. Nifty can test 16800-16700 this week. Immediate support is at 16900. A break below could trigger the aforementioned drop. The resistance for this week will be in the area of 17300 – 17400.
Medium term outlook: The 17500-17600 resistance area has held up itself very well. This keeps the broader bearish outlook intact. As we’ve indicated over the past few weeks, Nifty can drop to 16,300-16000 initially. Corrective retracement to 16500-16800 after that cannot be ruled out. However, the picture is still weak and the index could eventually test 15,500 and even 15,000 in the medium term. We should see the probabilities of fall extending to 14,000. However, from a long-term perspective, one should start looking at Nifty from the buy side when the index drops to 15000-14000 levels.
Keep the short positions taken at an average level of 17208 with a stop loss of 17,830. Follow the same strategy mentioned last week. Trace the stop loss down to 17050 when Nifty touches 16600. Move the stop loss down to 16700 when the indicator drops to 16400. Record your profit at 16200.
Sensex broke above 59000 as expected but failed to hold. The index rose to a high of 59203.37 on Monday and fell sharply to close the week 3.02 percent lower at 57,011.74.
next week: The inability to sustain a breakout above 59,000 indicates a lack of new buyers in the market. This leaves the outlook bearish. 59000 – 59500 will be a strong resistance area now. Sensex likely to drop below 57000 and drop to 56000-55000 this week
Medium term outlook: The 59.000-60,000 wide resistance area that we mentioned over the past two weeks has held up very well, in line with our expectations. This keeps our medium term broad term bearish view of seeing 54,000 through 52,000 on the downside in the coming months.
Nifty Bank (35,618.65)
Nifty Bank crossed 37200 as expected but did not extend the rally to 38000 as mentioned last week. The index hit a high of 37,580 on Friday and retreated from there to close 4 percent down for the week at 35618.65.
The index is now oscillating below the 200-day moving average (DMA) support at 35730. A strong bounce above 36000 from here is likely to meet resistance in the 36600-36700 region first and then at 37200.
The broader view is bearish. The Nifty Bank index could drop to 34,900-34,750 initially in the coming weeks and eventually to 34,000.
Adjusted stop loss reached at 37300 for the recommended short position at 36,678. We prefer to stay out of the market for a while. However, any bounce in the coming days would be a good opportunity to sell again. Traders can start new short positions at 36500 and 37200. The stop loss can be placed at 38200 for the target 35150.
The Dow Jones Industrial Average (35,365.44) fell to test the 35,500-35,250 support area initially last week. Although the index recovered sharply after the outcome of the US Federal Reserve meeting on Wednesday, it failed to sustain a rally. The Dow hit a high of 36,189 on Thursday and fell sharply again, giving up all the gains. The index closed at 35365.44, down 1.68 percent during the week.
It appears that the Dow has been struggling to break through 36000 decisively over the past two weeks. The price action on the charts is making the near-term outlook mixed. The index has equal chances of either moving towards 36500-37000 or dropping to 34,000 from current levels. As such, we will have to wait and watch for price action in the early part of next week to get a clear indication of the direction of the movement. Overall, 34,000 – 37,000 may be the wide range the Dow could swing within the next few weeks.