Weekly Outlook: Markets precariously poised; Nifty may re-test its 200-DMA

@rex_cano

Mumbai: Despite Friday’s heroics, the markets ended with steep losses on account of weak global cues and persistent selling pressure in financial shares and select index heavyweights. The India-China border dispute, slowdown in economic activity owing to the Covid-19 pandemic and FIIs outflows also weighed on the market sentiment.

In the week under review, the BSE benchmark index, the Sensex, set the tone for the week on the Monday itself as the BSE index displayed high volatility. Monthly derivatives expiry related pressure on Thursday saw the BSE index tumble to a low of 36,496 – down a whopping 2,350 points for the week at that point of time. However, Friday’s recovery helped the BSE index recoup some of its losses. But, yet the Sensex eventually ended the week with a huge loss of 3.8 per cent (1,457 points) at 37,389.

Among the Sensex 30 stocks, IndusInd Bank nose-dived over 16 per cent. Bharti Airtel, Tata Steel, Bajaj Finance and Mahindra & Mahindra slumped 9-11 per cent each. ONGC, Maruti Suzuki, Sun Pharma, NTPC, Axis Bank, PowerGrid Corporation, ICICI Bank, SBI and Asian Paints also shed 5-7 per cent each. However, HCL Technologies and Infosys were the only notable gainers.

Also Read: Market Outlook: Nifty testing crucial support at 200-DMA; resistance likely at 11,000-mark

The BSE index has broken all its support on the monthly Fibonacci chart, and even re-traced back to the monthly S1 at 37,450-odd level. With the month ending mid-week, one would need to wait for the following week to see fresh indications on the monthly Fibonacci chart for October. As of now, the BSE index may gyrate in the broad range of 36,700-37,950, with the possibility of an upside extension towards 38,630-level and on the flip side a downside extension towards 34,900-odd level.

As per the weekly Fibonacci chart, next week, in case of an up move the BSE index is likely to face resistance around 38,340-38,640-38,930. In case of a decline the Sensex may seek support around 36,440-36,140-35,850.

This week, the NSE Nifty registered its biggest weekly loss since the first week of May 2020. The NSE index from a high of 11,535, spiraled down to a low of 10,790 and then recovered partially to settle at 11,050 – still down a solid 4 per cent for the week. The late recoveries, more or less helped the NSE index close near its 100-WMA (Weekly Moving Average), which is at 11,065.

There are a couple of interesting developments on the NSE daily chart this week. Firstly, the NSE index tanked sharply and rebounded precisely from its 200-DMA (Daily Moving Average), which is currently at 10,770-odd level, below which the next significant support is the 100-DMA at 10,650-odd level. These two major support levels in a way probably indicate a cushion for the market or limit the downside in the near term.

However, the second important development on the daily chart is worrying, as the short-term trend is on the verge of turning negative. The 20-DMA is seen converging with the 50-DMA with a downward slope. The 20-DMA is currently at 11,355, while the 50-DMA is at 11,290. As and when the 20-DMA slips below the 50-DMA technically the short-term trend will be said to be negative. Thus, possibly attracting more sellers at higher levels thereafter.

Given the complex situation, the markets seemed to be precariously poised, with Nifty near its major support levels on one hand and possibility of the trend turning negative on the other hand. Going ahead, it seems like the NSE Nifty may re-test its 200-DMA for now, as the momentum seems to be in favour of the bears.

The key momentum oscillators on the weekly charts, also, do not bode well for the Nifty. The DI (Directional Index) has given a negative divergence, while the Slow Stochastic is already in favour of the bears. The MACD (Moving Average Convergence Divergence), however, is positive but showing some signs of tiredness. The RSI (Relative Strength Index) remains 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.