Weekly Outlook of Nifty from 4th Feb - 8th Feb

In the previous analysis of Sensex on 21^st Jan, I had explained about the ‘Doji’ with the negative divergences in the technical indicators and also suggested to remain cautious as the Sensex was trading near the upper border of the Rising Channel. The chart pattern of Sensex reacted as per expectation. Index reversed sharply post-policy high of 6111 for gradual weakness into 5983 before closing the week at 5998.

RBI’s policy action, which cut the repo, reverse repo and CRR rates by 25 bps (0.25%), will help the banking system with increased liquidity.

Now looking at the chart the index has dropped below its 20 day EMA back inside the long-term resistance zone between 19000 and 19800. Nevertheless the picture seems negative but I feel the Index will be supported by the 50 day EMA. Stronger support can be expected from the 19000/19132 level. However the Daily chart technical indicators are looking bearish.

Despite moderation in monetary policy, there is little optimism seen ahead. Now with monetary policy out of the way, the focus would be towards the budget at the end of the month.

NIFTY still looks bullish but is struggling to cross the important mark of 6180. And also the Nifty spot has closed below the 20 day EMA. So now if the Index breaks 6000 level in the coming week then it can fall till 5915-5850 levels.

Conclusion: The Chart of Sensex and Nifty have started correcting after nearing the upper border of the rising channel. Such corrections can provide opportunities to enter in selective stocks. For the week, watch 5915-6065 consideration into lower end, for extended weakness into 5850. The strategy should be to build “short” at 6045-6060 with stop at 6085 for 5915-5850.