Weekly Outlook of Nifty from Nov 19th - Nov 23rd

Last week it was mentioned that a big fall is ruled out “Use the opportunity to accumulate good quality stocks. However strong domestic cues are needed for extended bullish undertone beyond 5780-5830 while 5630-5580 stays firm. There is good value buying seen at 5630-5580 to retain bullish undertone into short term. For the week, let us watch 5630-5780 with extension limited to 5580-5830. It is traders market and considered good to buy at 5630-5580 and sell at 5780-5830 with tight stop on break thereof.”

During the week Nifty failed to cross the 5720 mark placing a high of 5719 and on Friday dropped near the trend line support (5545) placing a low of 5560 for the week. 

The Selling pressure has now pushed the daily chart of Sensex below its 50 day EMA and the trend line at (18290) and also near to the ‘gap’ area (18284). The index closed the week below the uptrend line, and above the ‘gap’. However a big fall in the Sensex was ruled out due to several bullish signals. But ultimately the Sensex did close below the uptrend line. It may be sensible to remain cautious. However, one need not sell-off in panic as the breach and close below; the uptrend line has not gone beyond. Only a close below 17900 will technically confirm a breach of the uptrend line. Secondly, the index has received support from the top of the ‘gap’. So there is a possibility that the index may bounce up from here and move above the uptrend line.

What if Sensex closes the gap? Well, an index or stock closes a ‘gap’ only to resume its previous move. So even if it closes below 17900, it may not be bearish, if the index bounces up from the 200 day EMA and resumes its up move.

The immediate term outlook is weak as weekly close below 18290 can take bulls out of the street. The global bourses also do not provide support driven by uncertainties in the US and Euro zones. The domestic cues are worse, hence may need to allow deeper correction for better value buying.

Nifty has moved below its 50 day moving averages after 45days in last session and closed at 5574. Nifty is trending down since five days, in other words nifty is daily closing at a lower price than its previous day’s close. Nifty is near its long term trend line support around 5545. If this trend line works for nifty in coming session then we may see a 5th wave up move till 5940. Nifty 5500 put is standing with highest open interest at 70,70,300 contracts  indicating that 5500 can provide support in nifty and 5500 call added fresh 15,10,850 contracts in open interest. FIIs bought index option worth Rs. 1400 cores and addition in open interest 5500 call seems that FIIs have bought option (5500 CE) in dip.

Weekly technical indicators are showing signs of weakness, but haven’t turned bearish yet. The MACD is touching its signal line in positive zone, after correcting a bit from its overbought region. The ROC has crossed below its 10 week MA, but is still positive. The RSI has slipped from its overbought zone. The Slow stochastic is sliding down, but remains inside its overbought zone. A drop below the 20 week EMA is a possibility in the coming weeks.

Conclusion: Chart of Sensex and Nifty are still undergoing consolidations which have turned into corrections below known resistance zones. It is important for NIFTY to get back into familiar trading range of 5580-5780 to knock out bearish momentum. Nifty is at critical level and trend line will decide the trend of nifty if holds 5545/5530 then next wave may take nifty to 5940-6000.

The immediate support is at 5526/5500; test/break here will quickly extend weakness into 5447 where it is good for strategic players to buy the second lot holding the final lot for 5400 with stop on break. There are strong resistances at 5630/5677 which should hold to retain bearish undertone into 5400. For the week, let us watch 5500-5630 with extension limited to 5447-5680.