Nifty’s movement in the week showed a lack of directional interest among the market participants but the index has managed to hold above key support levels.
The holiday-shortened week saw Sensex and Nifty continue their range-bound movement. Indices fell on three of the four trading sessions this week and closed 2% down on a weekly basis. Now, S&P BSE Sensex sits at 47,878 while the 50-stock NSE Nifty ended at 14,341. On the charts, Nifty has formed a doji or a high wave-type weekly candle, which is placed on the support of weekly 20 EMA around 14200 levels, said Nagaraj Shetti, Technical Research Analyst, HDFC Securities. “The negative pattern like lower highs was seen on the weekly chart and Nifty is currently placed at the lower lows, as per week’s close. This is not a good sign,” he added.
What do the charts say?
Nifty’s movement in the week showed a lack of directional interest among the market participants, said Manish Shah, Founder, Niftytriggers. He added that looking at the candle formation of the last eight sessions, only two candles were red and the balance six days were green. “Fear is a bigger emotion than greed. And the lack of bear power to push Nifty lower is a testimony that long term investors are too bearish on the overall market,” Manisha Shah said. According to him, Nifty could face immediate resistance at 14,525-14,550 a break above this and expect an up move towards 14,700-14,775.
At this juncture, technical analysts have been citing 14,200 as the key support for the Nifty index. A fall below the said levels could result in further correction for indices, forcing Nifty to explore 13,800-13,900 on the downside, said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.
Covid-19 weighs down on Dalal Street
Fundamentally, the main reason for the downtrend on Dalal Street is the rising cases of covid-19, according to analysts. The second wave is likely to hit economic progression but the extent is still not known. “While the fundamentals support a robust economy, it is too early to assess the potential damages, which is why even the markets have not reacted sharply so far,” said Joseph Thomas, Head of Research, Emkay Wealth Management. “But the probability, of the resurgence of the pandemic impacting growth and therefore, earning, is quite high for the first two quarters of this year. These factors would continue to dominate the market in the coming weeks too,” he added.
Investors should watch for stock-specific trades amid the current market momentum. Although rating agencies have trimmed growth forecasts, they still remain strong. Vinod Nair, Head of Research at Geojit Financial Services said that vaccine drive and lockdown are invoking hopes of economic recovery in the near future despite the weak market trend. “Movement will be stock-specific based on Q4 results and dictated by developments on the covid spread, like falling infection rate,” he said.
Looking at broader markets, analysts at Angel Broking said that Bank Nifty is likely to remain a major laggard till the time it does not reclaim 32,500 – 33,000. They added that the positioning of the NIFTY Midcap 50 index is completely overlooked by the market participants as the weekly charts show a ‘Lower Top Lower Bottom’ for the first time in this entire marathon rally started last April. These factors, according to Angel Broking, do not bode well for the bulls and hence, one should continue to remain light on positions.