HomeBusinessMarket Outlook: Technical indicators weigh in favour of the bears

Market Outlook: Technical indicators weigh in favour of the bears

Mumbai: Dis-appointment over Day 1 stimulus measures announced by the government coupled with weak global cues, our markets witnessed persistent selling pressure on Thursday. The BSE benchmark index, the Sensex, opened with a negative gap of almost 550-points, from where it tried to bounce back, but faced resistance around the weekly close at 31,631 and resumed its downward journey.

Yesterday, in our outlook we had mentioned that if the Sensex is unable to sustain above 31,650-odd level, we could witness downward pressure. The BSE index declined to a low of 31,053 in the latter half of the trading day and eventually settled with a loss of 886 points at 31,123.

IT and financial stocks were the major losers today. Among the Sensex 30 stocks, Tech Mahindra and Infosys plunged over 5 per cent each to Rs. 516 and Rs. 658, respectively. HDFC and IndusInd Bank shed around 4.5 per cent each. Reliance, NTPC, HDFC Bank, SBI, PowerGrid, Mahindra & Mahindra, ICICI Bank, Tata Steel, Bharti Airtel and Axis Bank declined 3-4 per cent each.

On the positive front, Hero MotoCorp rallied over 2 per cent to Rs. 2,241. UltraTech Cement, Maruti and Larsen & Toubro were the other notable gainers, up over a per cent each.

Among sectoral indices, the BSE Energy, IT and Finance indices tumbled over 3 per cent each. The Metal, Power and Oil & Gas indices too were down around 2.5 per cent each. The FMCG and Capital Goods indices were the only two indices to end in green zone.

The market breadth was fairly negative – out of 2,480 stocks traded, 1,405 declined and 924 advanced on the BSE. Also, only 32 stocks registered a fresh 52-week high, while 76 stocks touched a new 52-week low.

Going ahead, with nothing much to cheer for the corporate world in today’s announcements of the Finance Minister the sentiment could be negative tomorrow as well. Further, as mentioned at the beginning of the article now that the Sensex has failed to sustain above 31,650, the down move is likely to continue.

The next notable support for the Sensex could be the weekly S3 level, which is placed at 30,660, below which the Sensex may slide towards the monthly Fibonacci downside targets. As per the monthly Fibonacci charts, since the BSE index has broken support at monthly S1 (31,280) there has been the possibility of the Sensex testing the monthly Fibonacci S2 and S3 levels placed at 30,525 and 29,770, respectively.

Failure to hold support at monthly S3 (29,770), could spell fresh trouble for the markets. Hence, one needs to watch this level closely for any signs of trend reversal. As per the daily Fibonacci charts, on Friday, the BSE Sensex may seek support around 30,900-30,835-30,765, while in case of an up move the BSE index may face resistance around 31,345-31,410-31,480.

The NSE Nifty for the third straight day has flip-flopped around its 20-DMA (Daily Moving Average) since May 12. However, we may soon see exhaustion of the current pattern and witness emergence of a fresh trend. For now, it seems that the NSE index is likely to continue its downtrend journey and may test the trend line support at 8,980-odd level or dip further below towards the lower-end of the daily Bollinger Band which is around 8,900 level.

The NSE Nifty needs to sustain above 8,900-level on a closing basis, for keeping hopes of revival alive. Consistent failure to close above the lower-end of the Bollinger Band could indicate a fresh downside breakout in the trading range.

Among the key momentum oscillators – the Slow Stochastic has given a clear negative divergence. The DI (Directional Index) too is mildly in favour of the bears. However, the ADX (Average Directional Index) remains tepid, which indicates neither the bulls nor the bears are strong enough currently. Hence there is hope for pullback again. The MACD (Moving Average Convergence Divergence) and the 14-day RSI (Relative Strength Index) are in neutral mode.

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

Rex Cano
Rex Cano
Having worked as a journalist mostly in the financial domain for over 20 years, he has gained and applied knowledge of markets in his tenure with established and reputed organisations - IIFL, Sharekhan, Business Standard, HDFC Sec to name a few. He further explored his editorial skills and expertise while working with Free Press Journal and SBI Mutual Fund. He continues to draw inspiration from his passion for numbers with the aim to simplify the market know-how to those who love it.

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