Market Outlook: Upside for the Nifty may be capped around 11,650-level for now

@rex_cano

Mumbai: The markets on Monday tumbled sharply after testing fresh six-month highs in opening trade amid reports of the Chinese troops attempting to unilaterally change the status quo on the southern bank of the Pangong Tso Lake area in eastern Ladakh over the weekend. Reports added that a brigade commander-level meeting was underway at Chushul to resolve the issues. 

Meanwhile, the BSE benchmark index, the Sensex, had started the day with a huge gap of 420 points at 39,888. The BSE index soon crossed the psychological 40,000-mark barrier and touched a high of 40,010. The Sensex, thereafter, began to pare gains on account of profit-taking at higher levels. The news break in late morning deals accentuated the selling pressure as a result of which the BSE Sensex erased all gains and slipped into the negative zone.

Unabated selling pressure, thereafter, saw the Sensex extend losses as the day progressed. The BSE index nose-dived to a low of 38,396 – down a whopping 1,614 points from the early morning high. The Sensex eventually ended the day with a steep loss of 839 points at 38,628. Despite today’s sharp fall the BSE Sensex ended the month of August with a gain of 2.6 per cent (1,021 points).

Also Read: Weekly Outlook: More upside likely; Sensex may target 40,000-mark

Among the Sensex 30 stocks, Sun Pharma tumbled nearly 7 per cent. SBI, Bajaj Finserv, Bajaj Finance, NTPC, Kotak Mahindra Bank, IndusInd Bank, Mahindra & Mahindra and UltraTech Cement dropped 4-6 per cent each. Larsen & Toubro, Maruti Suzuki, ICICI Bank and Titan also shed over 3 per cent each. On the other hand, only three stocks managed to close in green, ONGC was the prominent gainer up 2 per cent.

Going ahead, apart from the global cues, mainly US, the India-China conflict and rising number of Covid-19 cases in India could have a bearing on the markets. On Tuesday, the markets are also expected to react to a dismal set of GDP (Gross Domestic Production) numbers, wherein India’s Q1 GDP plunged by a record 23.9 per cent, the contraction is said to be the worst among G20 nations.

Given the huge wild swing, we see mixed signals on the weekly Fibonacci chart for the Sensex. The BSE index at first had given a buy signal by crossing the weekly (R2) placed at 39,980. In fact, the BSE index had managed to clear the key resistance on the quarterly and yearly charts as well in the range of 39,800-39,990. However, the Sensex thereafter gave a sell signal on the weekly Fibonacci by breaking the weekly (S3) at 38,830. Major support levels on the quarterly and yearly charts are quite far in the range of 37,200-36,700, hence the longer-term uptrend remains intact.

To simplify, the weekly bias for the BSE Sensex is likely to remain negative as long as the BSE index sustains below 38,830-level. In case of a pullback the Sensex may face resistance around 39,070-39,240. However, the overall trend for this quarter is likely to remain positive as long as the BSE index holds above 36,720-level.

As per the monthly Fibonacci charts, in September, in case of an up move the BSE Sensex may face resistance around 39,800-40,180-40,540, while in case of a down move, the BSE index may seek support around 37,450-37,080-36,710.

As per the daily Fibonacci charts, on Tuesday, in case of an up move the BSE Sensex is likely to face resistance around 39,240-39,440-39,630, and in case of a down move, the Sensex may seek support around 38,010-37,820-37,630.

The NSE Nifty cracked 2.2 per cent on Monday to settle at 11,390. The NSE index has formed a large bearish Engulfing Candle pattern on the daily charts, which generally signals the possibility of change in direction. Going ahead, last week’s close for the Nifty around 11,650-odd levels, now becomes a crucial hurdle. 

The short-term trend for the Nifty is likely to remain slightly negative as long as the NSE index trades below 11,650-level. On the downside, the 20-DMA (Daily Moving Average) at 11,340-level is an immediate support, below which the Nifty can slide towards the 50-DMA at 11,000-mark.

Among the key momentum oscillators on the daily charts, the MACD (Moving Average Convergence Divergence) and the Slow Stochastic have given a negative divergence. The DI (Directional Index) is also on the verge of giving a negative divergence. However, the 14-day RSI (Relative Strength Index) is in the neutral zone.

Disclaimer: The views expressed in this article are personal and for information purpose only, it does not advocate any buy or sell /recommendation.