Weekly Outlook of Nifty from 28th May-1st June

NIFTY made a low of 4767 last to last Friday and managed to hold the critical support level of 4760 during this week. However though Nifty has taken support at this critical turning point, one needs to be little cautious at this stage considering the overall market scenario.

The index is trading below its 20 week & 50 week falling EMAs and the down trend line. All three are potential barriers to any up move.

The technical indicators are bearish. The MACD is falling below its signal line in negative territory. The ROC has stopped falling, but remains negative and below its 10 week MA. Both the RSI and the slow stochastic are in their oversold zones, and touched lower bottoms as the Sensex touched a higher bottom. The negative divergences may pull the Sensex down.

The Nifty consolidated sideways and closed about 30 points higher on a weekly basis with low volumes. So it was more of short-covering than investment buying. And interestingly, FIIs were net sellers on the last two days.

The technical indicators have corrected from oversold conditions. The MACD has turned up to touch its signal line in negative territory. The ROC has climbed above its 10 day MA. Both the RSI and the slow stochastic have turned up from their oversold zones.

Any attempt for an up move will need to overcome the resistances at 4980-5000. The down move is likely to resume after the current consolidation is over.

Conclusion: The Sensex and Nifty charts are in bear markets and may look forward for lower levels. I expect NIFTY will have to make multiple attempts to cross the hurdle at 4980 and 5000. Crossover of this line will encourage Index to move up further and test 200 day SMA at around 5100 level. The key technical indicators and oscillators are showing some kind of recovery and suggest that pullback is likely to continue.

However, though the Technical target for this pullback is 5100; but considering Friday’s highest OI build-up at 5000 strike price Call Options suggests that 5000 is likely to act as strong resistance till expiry. On downside 4760-4800 is now of great importance. Safeguard cash till the wave turns.

Weekly Outlook from 14th May-18th May

During the week NIFTY acted placing a low of 4906 and closed the week at 4930. The other interest news for the week was GAAR. Government decided to put off GAAR by a year on Monday morning and market showed some recovery. However the recovery was just near to the technical resistance level of 5140.

The technical indicators of Sensex are looking bearish and a deeper fall is likely. The MACD has crossed below its signal line and entered into the negative zone. The ROC is negative and below its 10 week EMA. The RSI has dropped to the border of its oversold zone. The slow stochastic has entered into negative territory. A pullback towards the trend line can be used as an opportunity to sell.

The 20 day EMA has crossed below the 200 day EMA and the 50 day EMA is on the verge of acting likewise which will confirm a return to the bear market. The technical indicators are looking bearish and in the oversold region. The MACD is falling below its signal line in negative territory. The ROC is negative, and below its 10 day MA. The RSI is inside its oversold zone trying to turn around. The slow stochastic is in its oversold zone.

Conclusion: The overall view is still negative so it is important to understand how far NIFTY can go down from the current levels. Index is in corrective mode and historical data suggests that NIFTY can take reversal at the level of 4760-4800. The highest Open Interest build-up for PUT is at 4800 suggesting strong support. Most of the Technical Indicators & Oscillators are entering into oversold zone. Nevertheless I strongly feel that NIFTY can definitely find support in the range of 4760-4800 for coming weeks. It would make sense to start building small long positions as NIFTY approaches this support level with a bounce back target of around 5100. A pullback towards the down trend line is possible but it would be a selling opportunity. Sit on cash should be the priority.