Weekly Outlook of Nifty from Nov 26th - Nov 30th

Last week it was mentioned “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.”

During the week Nifty could hold up the support of (5545) and ended the week placing a low at 5548 and a high of 5643. NIFTY traded in consolidation mode between negative zone of 5640-5670 and strong support at 5545-5526 (low of 5548) before comfortable weekly close at 5626. Despite strong bearish set up NIFTY held well on FII support and increase in investment limit for LIC, largest domestic institutional investor in the market.

The index closed above its 50 day EMA on the last two days of the week, after spending 4 days below it. However Bears are still in the game. The index failed to move above its falling 20 day EMA. As long as Sensex trades above its rising 200 day EMA, the bull market remains intact. Bears are unlikely to give up easily.

Daily technical indicators are bearish, but showing signs of turning around. The MACD is below its signal line in negative territory and moving sideways, while the histogram has started to rise. The ROC is negative, but has moved up slightly towards its falling 10 day MA. The RSI failed to climb above its 50% level, and is dropping towards its oversold zone. The Slow stochastic has emerged from its oversold zone, but is well below its 50% level. Bears are unlikely to give up easily.

After a close just below the trend line in the previous week, the weekly chart pattern of Nifty pulled back to close exactly on the uptrend line last week. Despite the brief drop below the uptrend line, the index is trading above its 20 week and 50 week EMAs. The bull market is still intact.

Conclusion: Chart patterns of Sensex and Nifty are still in consolidation mode. As long as the indices trade above their 200 day and 50 week EMAs, the bulls will have the upper hand. However there are no strong bullish cues at this stage and also there is risk of withdrawal of FII support for equity market. There are lot of risk factors in the game such as political agreement on reforms, sovereign rating downgrade, slippage in growth, overshoot in fiscal deficit, elevated trade deficit, high dependence on external liquidity, elevated inflation, possible delay in shift into growth supportive monetary stance etc.  On Technical chart Index is still trading on the edge of lower support line of the price channel and also mentioned about the 5^th wave which could take Nifty to 5940 if it manages to hold 5545 & 5526 and finally it did turn around exactly from the same level. However the derivatives data suggests that there is an equal force from Bull and Bear and NIFTY is stuck between level 5600 and 5700 for the coming week. The gap zone between 5447-5526 remains critical support in case of any negative result from the Winter Session. At same time the upper side seems restricted around 5750 till the Nov F&O Series expiry even if Winter Session positively surprises with agreement between government and option parties on various reforms. So for the coming week I expect NIFTY to bounce back within this range. Keep an eye on major supports at 5545/5526 and watch 5662 for further up move.