Index Outlook: On a slippery slope
Volatility may continue with markets keenly awaiting the outcome of the US elections
The domestic equity markets have been choppy over the last couple of weeks. Bellwether indices have seen sharp intra-day volatility. These movements have been led by global events. The volatility is likely to continue in the coming week with markets keenly awaiting the outcome of the US presidential elections due on November 8.
The Nifty 50 index lost more than 2 per cent over the last week. It breached a key support at 8,500 and closed at nearly a four-month low.
This week: A couple of weeks back, the index tested the key resistance at 8,700 and also the 21 as well as 50-day moving averages but failed to move past them. Subsequently, the index resumed its short-term downtrend that has been in place since the early September peak of 8,968. On Friday, the Nifty fell 51 points or 0.6 per cent and decisively closed below the key support at 8,500. This decline has strengthened the downtrend. The daily relative strength index features in the bearish zone and the weekly RSI is charting downwards in the neutral region. Both the daily and weekly price rate of change indicators hover in the negative terrain, implying selling pressure.
Short-term outlook is bearish. The index can extend its decline to 8,400 once again and then to 8,300 in the coming week. Traders with a short-term perspective can make use of the intra-day rallies to initiate fresh short positions, while maintaining a fixed stop-loss at 8,620 levels. Key supports below 8,300 are at 8,240 and 8,200 levels.
On the upside, the index needs to decisively breach the immediate resistance at 8,500 for the corrective upmove to extend to 8,550 and 8,600 levels. Only a strong breakthrough of 8,600 and 8,700 will show signs of optimism and take the index northwards to 8,800 and 8,900 in the short term.
Medium-term view: The key support in the range between 8,500 and 8,550, which was providing base since mid-July, failed to hold up last week. This has increased the possibility of a decline to 8,300 initially and then to 8,150 — the 38.2 per cent Fibonacci retracement level of the prior uptrend in the medium-term horizon. Next significant support is at 8,000 levels. Investors with a medium-term perspective can consider taking partial profits off the table at this juncture and staying invested with a stop-loss at 7,950. Strong rally beyond 8,900 can take the index higher to 9,000, 9,100 and 9,300 levels.
In the truncated week ago, the Sensex fell 2.4 per cent, breaking the key support at 27,500 decisively.
This week: The Sensex, which had closed marginally above the 28,000-mark a couple of weeks back, failed to sustain its bullish momentum. While trending down, the index breached the key supports mentioned earlier at 27,800 and 27,500. The short-term outlook for the index is bearish. It can continue the downtrend that began from the early September high of 29,077. Key supports to note are at 27,000 and 26,730 levels. Strong rally beyond 27,500 is required to bring back positive momentum and take the index higher to 27,800 and then to 28,000.
Medium-term view: The ongoing decline is a threat to the medium-term uptrend of the index. As long as the index trades above the support band between 26,200 and 26,500, the uptrend can remain intact. But an emphatic slump below this band will intensify the bearish momentum and pull the index down to 26,000. Conversely, a break-out of 29,000 is needed to take the index higher to 30,000 in the medium term.
Last week, the Bank Nifty slumped 2.4 per cent and is testing the key support at around 19,000. A downward breakthrough of this base will increase selling pressure and pull the index down to 18,800 and then to the 18,500-18,600 band in the coming weeks. Traders with a short-term perspective can initiate fresh short positions on a decisive fall below 19,000 levels with a stop-loss at 19,250. The index trades well below its 21 and 50-day moving averages. Key immediate resistances are at 19,300 and 19,500. Next resistances above 19,500 are pegged at 19,800 and 20,000.
Last week, the Dow Jones Industrial Average declined 1.5 per cent, breaking the range-bound movement between 18,000 and 18,400. Short-term trend is down. The index can decline to test the next support at 17,800 and then at 17,600 in the near future. Key resistances are at 18,000, 18,100 and 18,300.
The Nikkei 225 index encountered resistance at 17,500 and slumped 3 per cent in the previous week. Immediate support is at 16,500. Resistance to note is at 17,235.
(This article was published on November 5, 2016)