Nifty : Bearish, but close to strong support

Market fell about two per cent to complete the third week of fall, and appeared to have taken support around previous yearly low. Though market had fallen only for three weeks, damage is quite severe as it had fallen more than 500 during the period and several stocks had hit multi-year lows and some even below 2008 lows. Change of guard at RBI (from September) could be taken positively by market as easy money policy could prevail, and RBI and GOI could work in tandem. Technically, Nifty had entered medium-term bearishness and unless it goes above 200 DMA, it would continue to remain bearish. However, in view of the steep fall and oversold zone, there is scope for a minor pullback.

Further, GDP growth forecast too is scaled down. In addition, if Food Security Bill is passed, which is most likely, it would put lot of pressure on the exchequer and widen the deficit, which would be viewed negatively by markets. Fundamentally, Nifty is quoting below long-term average PE and any further fall could make it attractive from long-term point of view. So, the present divergence between fundamentals and technicals could prevail for some time before they converge. Further, FIIs too might not enter market in a big way unless currency situation improves. Current week, being a truncated one with holiday on Thursday, August 15, might witness selling pressure at higher levels.

Nifty is bearish in all time frames i.e., short, medium and long-term as long as it trades below 200 DMA. Short-term uptrend would be restored if Nifty closes above 5675 mark. As Nifty has been oscillating in a narrow zone of 750 points (6240 to 5480) in the last six months, a clear direction can be expected sooner than later and the current calendar year range of 750 points would usually get widened to more than 1250 points before the end of the year and, as it appears, it is likely break on the lower side.

For the coming week, Nifty spot is expected to face resistance at 5640, 5720, 5790 and find support at 5490, 5415, 5345. Nifty, presently in short term bearishness, would get out of the same only on a close above 5675.

Advice for Traders
Nifty corrected sharply without any pullback and in view of the oversold zone, a technical pullback can be expected which may be utilized for selling. There is strong support around previous low (5480). Hence, this week is crucial as it is caught between strong support and resistance. Hence, it is better to wait for a strong pullback or wait for the support to be broken for further action. Further, weekly open level is very important for the entire week. Short positions may be avoided as long as it maintains / closes above weekly open and vice versa