Market Outlook: Nifty trading range getting congested; breakout likely soon

Mumbai: Volatility ruled the roost on Tuesday, as the markets grappled with both global and domestic news flow. The day began with a bang, as the BSE benchmark index, the Sensex opened with a massive positive gap of 450-odd points at 33,854 on the back of strong overseas cues. The US Federal Reserve on Monday announced a surprise corporate bond buying programme with an aim to improve market functioning in the wake of the coronavirus pandemic. This triggered a sharp rebound in the US markets, with the Dow Jones index surging as much 4 per cent on Monday.

Closer home, the Bank of Japan said that it expects to infuse around 110 trillion yen to the economy through its market operations and lending facilities, this propelled the Japan’s benchmark index, the Nikkei, to soar as much as 5 per cent. Thanks to the positive triggers, the BSE index galloped over the 34,000-mark with ease to touch a high of 34,022. The index, thereafter, consolidated owing to selective profit-taking. A sharp fall in mid-noon deals saw the BSE index slide to a low of 32,953 – down a whopping 1,069 points from the day’s high amid news report of casualties in the Indian army at the Indo-China border.

The markets were nervous for quite some time, awaiting more clarity on the news development. However, reports indicated that high-level military talks were initiated soon after to diffuse the tension. Meanwhile, global cues continued to remain buoyant as a result of which the Sensex bounced back into the positive territory, and finally ended with a gain of 376 points at 33,605 led largely by private lending majors.

Also Read: Market Outlook: Select momentum oscillators indicating likely weakness in the near term

Among the Sensex 30 stocks, the HDFC twins, HDFC and HDFC Bank surged over 4 per cent each. ICICI Bank, Kotak Mahindra Bank, Infosys and Hero MotoCorp were the other major gainers. On the flip side, Tech Mahindra declined nearly 3 per cent. Axis Bank, IndusInd Bank, ITC and Bharti Airtel were the other prominent losers.

The Sensex by-and-large has failed to give any clear indication on the weekly Fibonacci chart for the second straight day. Thus, we may continue to witness indecisiveness’ within the existing trading range of 32,850-35,000. The bias seems leaned towards limited upside, with a possibility of fresh lows on the downside in this month. To add to the traders woes, global and domestic news flow is likely to play a dominant role for now, especially development towards the Indo-China border and a likely second wave of Coronavirus.

As per the daily Fibonacci charts, on Wednesday, in case of an up move the BSE Sensex is likely to face resistance around 34,010-34,140-34,270, and in case of a down move, the BSE index may seek support around 33,200-33,070-32,940.

The NSE Nifty ended with a gain of 1 per cent at 9,914, but still fairly below the day’s starting point, indicating lack of confidence at higher level among traders. The index opened above the psychological 10,000-mark but could not sustain above it for long. For the last seven trading sessions, since the NSE index touched a high of 10,330, the index is seen moving in a narrow trading band between the 20-DMA (Daily Moving Average) on the downside and 100-DMA on the upside. 

Earlier the trading range indicated movement between 9,600-10,300, but now the range has got congested with 20-DMA at 9,680 and 100-DMA at 10,150. Congestion of the trading range indicates a likely breakout in either direction is on the anvil soon. In case of a breakout on the upside, the Nifty may re-test its recent high around 10,300-level, while a breakout on the downside, can trigger a slide towards the 50-DMA at 9,330.

Among the key momentum oscillators on the daily charts, the MACD (Moving Average Convergence Divergence) and the Slow Stochastic continue to remain in favour of the bears. The DI (Directional Index) has flip-flopped and indicating a positive bias, while the 14-day RSI (Relative Strength Index) continues to remain in neutral mode.

Disclaimer: The article is for information purpose only and does not advocate any buy or sell /recommendation.