Index Outlook: Nifty breaks key short-term support

The Nifty and the Sensex slump on geopolitical tensions and profit booking. Stay cautious

Geopolitical tension between the US and North Korea that spooked global markets, dragged domestic indices too. The CBOE VIX, the US market’s fear gauge, has reversed sharply higher, gaining 34 per cent in the previous week, indicating that investors are turning cautious amidst volatility in the markets. Reflecting this, the India VIX too advanced 33 per cent last week to 15.2 levels, as the Nifty index slumped steeply.

The India VIX has moved to levels witnessed in January, after staying below 13-mark for many months. Some of the blue-chip stocks missed their earnings estimates last week, which also triggered the sell-off. The geo-political worries have also led to largest outflows from South Korea and other Asian markets such as Taiwan and India.

On the other hand, inflows were seen in Brazil, keeping the Brail Bovespa index resilient, advancing 460 point or 0.7 per cent despite global markets plunging. Moreover, global investors moved to gold, considering its safe-heaven status. The yellow metal rose 2.5 per cent last week whereas silver jumped 4.7 per cent. The rupee weakening and slipping below the 64-mark brought some cheer to IT stocks.

The truncated week ahead could give some relief to investors and foreign portfolio investors.

Nifty 50 (9,710.8)

The stellar run came to a halt in the Nifty in the previous week, as the index nosedived 355 points or 3.5 per cent.

Short-term trend: With steep fall in the Nifty 50 index, the short-term trend has altered. The index fell below key supports at 9,900 and 9,785. Moreover, the fall has also breached its 21- and 50-day moving averages.

The index has closed below the 50-day moving average for the first time since last December, signalling weakness. Near-term trend has been down for the index since recording an all-time high of 10,137.8 on August 2.

The index now tests a key support at 9,700 levels. Short-term investors should tread with caution and desist taking fresh long positions at this juncture. Strong plunge below 9,700 can drag the index down to 9,500 in the short term. An upward reversal from the current levels can encounter resistances at 9,800 and 9,900 levels.

Strong rally above 9,900 is needed to bring back the bullish momentum and take the index higher to 10,000 levels. Next resistances are at 10,100 and 10,200.

Medium-term trend: The sharp fall last week led to the formation of a long bearish engulfing candlestick pattern in the weekly chart, implying trend reversal. Investors with low-risk appetite can consider booking some profits at this juncture.

A strong tumble below 9,500 can erode the profits. Such a fall can pull the index down to 9,300 and 9,120 levels in the medium term. However, resumption of the uptrend from the key support level of 9,500 can keep the index moving sideways in the wide range between 9,500 and 10,000 for a while. Targets above 10,000 are 10,854 and 11,360.

Nifty Bank (23,985.7)

Bank Nifty fell 841 points or 3.4 per cent in the previous week, breaking a key support at 24,500. With this fall, it has breached its 21-day moving average. The index currently tests its 50-day moving average and a key support at 24,000 levels.

An emphatic downward breakthrough of this level will reinforce the bearish momentum and pull the index down to 23,700 and 23,500 levels in the near term. Traders can go short in such a scenario, with a stop-loss placed at 24,200 levels.

Further fall below 23,500 can drag the Bank Nifty down to 23,220 and 23,000 levels in the medium term. Resumption of the uptrend can encounter hurdles at 24,500 and 24,700. Next resistance is at 25,000.

Sensex (31,213.5)

The Sensex plunged 1,111 points or 3.4 per cent last week. It breached its 21- as well as 50-day moving averages emphatically. The index hovers just above a significant medium-term support level of 31,000.

An emphatic fall below this level can pull the index down to 30,800 and 30,500 in the near term. Resistances are placed at 31,600 and 32,000. Strong rally above the second resistance is required to strengthen the bullish momentum and take the index higher to 32,500 levels

Last week, the index failed to hold above the key level of 31,652 and declined experiencing selling pressure. The short-term trend is down.

The medium-term uptrend will be positive as long as the index trades above the 30,000-mark. Next support to note is at 29,500.

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