Will Sensex and Nifty slip further?

The caution flagged before Diwali in this column has been borne out. Both Sensex and Nifty 50 had witnessed some recovery in the first two weeks of this month. Thereafter the fall last week indicates that the corrective fall that had begun from the October highs of 18,604.45 on the Nifty and 62,245.43 on the Sensex is intact. Crucial support is coming up for the Sensex and Nifty at 59,000 and 17,500-17,450 respectively. The indices will come under danger for a much steeper fall on a break below these supports. So, the price action in the coming weeks will need a close watch.

Sensex and Nifty have closed lower by 1.73 per cent and 1.87 per cent respectively. Among the sectors, barring auto, power and healthcare, all others closed in the red. The BSE Metal index, down 5.84 per cent, tumbled the most last week. It was followed by the BSE Realty and BSE Oil and Gas indices that were down 4.1 per cent and 3.2 per cent respectively.

Nifty 50 (17,764.8)

Nifty 50 failed to get a strong follow-through rise last week. It made a high of 18,210 on Monday and fell sharply to break and close below 17,800 — the support that was holding well in the week earlier. Nifty has closed at 17,764.8, down 1.87 per cent.

The week ahead: An immediate support is at 17,700 which will need a close watch this week. If Nifty manages to sustain above this support, a bounce to 17,900-18,000 is possible. But 18,000-18,100 is a strong resistance that can cap the upside. As such, Nifty is likely to remain below 18,100 and be under pressure to break 17,700. The target on a break below 17,700 will be 17,500-17,450.

Medium-term outlook: The region between 17,500 and 17,450 is a strong support. A corrective bounce from this support zone towards 17,700-17,850 is a possibility. But on the charts, the break below 17,700 will indicate a complex head and shoulder reversal pattern on the daily chart. As such, the bounce from 17,500 can be capped at 17,700-17,850. A pull-back again from the 17,700-17,850 region will keep the broader outlook bearish to break below 17,450. Such a break can drag the Nifty to 17,000. Such a fall to 17,000 could be a good buying opportunity.

Trade strategy: Positional traders can make use of rallies to go short at 17,830 and accumulate shorts at 17,950. Keep the stop-loss at 18,120. Trail the stop-loss down to 17,760 as soon as the index moves down to 17,640. Book partial profits, for 40 per cent of your holdings at 17,530. Then move the stop-loss down to 17,660 for the rest of the short position. Exit the remaining 60 per cent of the holding at 17,230.

Sensex (59,636.01)

Sensex failed to break above the resistance at 61,000 last week. It made a high of 61,036.56 and has come off sharply to close below 60,000 last week. The index has closed at 59,636.01, down 1.73 per cent.

The week ahead: Inability to breach 61,000 and the subsequent fall below 60,000 last week keeps the bias bearish for Sensex. A test of 59,000 — the key short-term support — is possible…