Nifty Outlook: 20-DMA, trend line support area holds the key

Mumbai: It was an action packed day for market participants, with markets swinging between zones as benchmark indices tested key support levels. The BSE benchmark index got off to a shaky start, but soon found support around the daily S1, post which the index rebounded and rallied all the way towards the daily R3 level mentioned in our report yesterday.

The Sensex touched a low of 31,159, from where it staged a 800-point rally as the index touched a high of 31,971. The BSE index pared some of the gains towards the close and eventually ended 232 points higher at 31,686.

Auto major, Mahindra & Mahindra was the top gainer for the second day running, up over 5 per cent at Rs. 387. Bajaj Finance also surged over 5 per cent to Rs. 2,106. HDFC Bank, Bharti Airtel, ICICI Bank and Hero MotoCorp were the other major gainers, up over 3 per cent each.

On the other hand, ITC was the major loser among the Sensex 30 stocks, down nearly 6 per cent at Rs. 164 amid reports that the government plans to sell its stake in the firm. Hindustan Unilever, TCS, Infosys and Titan were the other prominent losers.

Among sectors, the BSE Bankex, Finance, Auto and Telecom indices were up around 2 per cent each, while the FMCG index plunged 2 per cent. The market breadth was marginally negative – out of 2,468 stocks traded on the BSE, 1,268 declined, while 1,056 advanced. Today, 32 stocks recorded a new 52-week high and 89 stocks touched a fresh 52-week low.

With today’s low at 31,159, the Sensex has broken its monthly S1 level, which was placed at 31,280. Thus, there is a possibility of the BSE index testing the monthly Fibonacci S2 and S3 level placed at 30,525 and 29,770, respectively, during the course of the month.

On Thursday, as per the daily Fibonacci charts, the Sensex may seek support around 31,375-31,280-31,185, while on the upside may face resistance around  31,995-32,090-32,185. For any meaningful recovery, the BSE index would need to sustain above 32,135-odd level, above which the major hurdle would be 32,750.

As expected, the NSE Nifty bounced back after testing its 20-DMA (Daily Moving Average) around 9,130-odd level. The index ended the day 0.7 per cent higher at 9,270. In the near term, it seems like the 20-DMA and the trend line support around 8,980 are likely to act as strong support area for the index.

However, in case, if the Nifty fails to hold on to the support area, the index may slide all the way towards 8,450-odd level – which is the lower end of the Bollinger Band on the daily chart.

The key momentum oscillators continue to give mixed signals. The Slow Stochastic continues to remain in favour of the bears, while the MACD (Moving Average Convergence Divergence), albeit showing signs of tiredness, is still in favour of the bulls. The Directional Index 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.