The caution pointed out to Diwali in this column has been confirmed. Sensex and Nifty 50 both saw some recovery in the first two weeks of this month. Subsequently, last week’s drop indicates that the corrective drop that started from the October highs of 18,604.45 on the Nifty and 62,245.43 on the Sensex is intact. Crucial support arrives for Sensex and Nifty at 59,000 and 17,500 at 17,450 respectively. The indices will be threatened with a much more pronounced fall if they break below these supports. Thus, the evolution of prices in the coming weeks will require close monitoring.
Sensex and Nifty closed down 1.73% and 1.87% respectively. Among sectors, with the exception of auto, power and health, all others closed in the red. The BSE Metal Index, down 5.84%, fell the most last week. It was followed by the BSE Realty and BSE Oil and Gas indices which were down 4.1% and 3.2% respectively.
Clever 50 (17,764.8)
Nifty 50 failed to get a big follow-up increase last week. It peaked at 18,210 on Monday and fell sharply to break and close below 17,800 support which held up well the week before. Nifty closed at 17,764.8, down 1.87%.
The coming week: Immediate support is at 17,700 which will require close monitoring this week. If Nifty manages to hold above this support, a rebound to 17,900-18,000 is possible. But 18,000-18,100 is a strong resistance which may cap the upside. As such, Nifty is expected to stay below 18,100 and be under pressure to break through 17,700. The goal on a break below 17,700 will be 17,500 to 17,450.
Medium-term outlook: The region between 17,500 and 17,450 is a solid support. A corrective rebound from this support area towards 17.700-17.850 is a possibility. But on the charts, the breakout below 17,700 will indicate a complex head and shoulders reversal pattern on the daily chart. As such, the 17,500 rebound may be capped at 17,700-17,850. Further pullback from the 17,700-17,850 region will maintain the broader bearish outlook to move below 17,450. Such a break may result in the Nifty at 17,000. Such a drop to 17,000 could be a good buying opportunity.
Commercial strategy : Position traders can use rallies to go short at 17,830 and accumulate shorts at 17,950. Keep the stop-loss at 18,120. Follow the stop-loss to 17,760 as soon as the index drops to 17,640. Reserve partial profits for 40 percent of your holdings at 17,530. Then move the stop-loss to 17,660 for the remainder of the short position. Leave the remaining 60% of the holding at 17,230.
Sensex failed to break through the 61,000 resistance last week. It peaked at 61,036.56 and closed sharply below 60,000 last week. The index closed at 59,636.01, down 1.73%.
The coming week: The inability to break through 61,000 and the subsequent drop below 60,000 last week maintains the bearish bias for Sensex. A 59,000 test of key near-term support is possible this week. Whether or not Sensex succeeds in maintaining above 59,000 will be crucial for the future. If Sensex maintains above 59,000, it may see consolidation between 59,000 and 60,000 for a while. But on the charts, the odds seem high that the Sensex will drop below 59,000 eventually, if not immediately.
Medium-term outlook: Sensex will now need to break above 61,000 to bring the bullish trend back. A range of 59,000 to 61,000 is possible for a few weeks if Sensex manages to hold above 59,000. But as mentioned above the bias on the chart is bearish to see a break below 59,000. Such a breakout may bring the Sensex down to 57,000, crucial medium-term trend support. Price action around 57,000 will need to be watched closely. If Sensex goes below 57,000, it may drop to 55,000. But for now, we expect 57,000 people to hold on and keep the medium-term uptrend intact.
Smart Bank (38,926.25)
Nifty Bank extended the decline in line with our expectations and closed in the red for the second week in a row. Indeed, it fell straight away towards 37.700 without seeing a corrective rebound from the support zone 38.000-37.950. The Nifty Bank Index hit a low of 37,750 and rebounded slightly from there to close the week at 37,926.25, down 2.08%.
The trailing stop-loss placed at 38,400 on short positions taken at 39,675 was hit during the intraday rebound seen from 38,000 on Wednesday.
For this week 38,000-38,050 is immediate resistance. The next major resistance is at 38,300. If the index continues to trade below these resistances there is a good chance that it will fall further towards 37,000. The 37,000 level is a strong support that can hold on its first test. There is a good chance that the index will rebound from 37,000 to 38,000 or even more in the coming weeks. Price action near 37,000 will require close monitoring,
It is best to stay out of the market for a week or so. However, if you are a trader with a high risk appetite, take new short positions now and accumulate shorts at 38,150. Keep a tight stop-loss at 38,350 and record profit at 37,150. Follow the stop- loss up to 37,550 as soon as the index drops to 37,350. We repeat, this trading recommendation is only for those with a high risk appetite.
The Dow Jones Industrial Average (35,601.98) failed to break resistance at 36,250 decisively last week. It peaked at 36,316.61 on Tuesday and fell again below 36,000. The index closed the week at 35,601.98, down 1.38%.
The inability to break through 36,250 followed by a steep drop below 36,000 keeps the short-term outlook bearish. As long as the Dow Jones stays below 36,000, there is a good chance that it will drop to 35,000 in the coming weeks. A rebound of around 35,000 can keep it in the 35,000 to 36,000 range for a while. A strong break below 35,000 will then increase the risk of a fall extending to 34,000. As such, the price action at 35,000 will require close monitoring to see if the Dow Jones manages to rebound from go from there or not.
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