BEARISH BREAKOUT; NIFTY HEADED SOUTHWARDS - 21/08/2015.

SUB-8000 LEVELS SOON.

For the past two months, the market was confined to a narrow trading range of Nifty 8315 to 8654. Finally a bearish breakout was delivered on Friday, much to the delight of the bears, as both Sensex and Nifty managed to close below the lower boundary of the trading range. Besides the inherent weakness in our markets, Bears were greatly supported by weakness in global markets. On Friday, Nifty took support at the Support zone of 8213-8186 before bouncing back slightly. A break of this support zone will lead the Nifty lower, possibly to retest sub-8000 levels soon.

BEARISH BREAKOUT; NIFTY HEADED SOUTHWARDS - 21/08/2015.

SUB-8000 LEVELS SOON.

For the past two months, the market was confined to a narrow trading range of Nifty 8315 to 8654. Finally a bearish breakout was delivered on Friday, much to the delight of the bears, as both Sensex and Nifty managed to close below the lower boundary of the trading range. Besides the inherent weakness in our markets, Bears were greatly supported by weakness in global markets. On Friday, Nifty took support at the Support zone of 8213-8186 before bouncing back slightly. A break of this support zone will lead the Nifty lower, possibly to retest sub-8000 levels soon.

TECHNICALLY SPEAKING.

Sensex opened the week at 28093, made a high of 28095, low of 27131 and closed the week at 27366. Thus it closed the week with a loss of 701 points. At the same time the Nifty opened the week at 8530, made a high of 8530, low of 8225 and closed the week at 8299. Thus the Nifty closed the week with a loss of 219 points.

On the weekly charts, both the indices made an Opening Black Body Marubuzo which has bearish implications. On the daily charts, Nifty has made a black body Spinning Top which is a neutral formation. For bullish reversal it requires a confirmation. Thus weekly charts suggest bearishness in the near term.

Finally after moving in a small trading range for nearly two months, market managed to produce a bearish breakout by closing below the lower end of the trading range i.e. Sensex 27416 and Nifty 8315. Thus as mentioned in the previous weeks article, market immediately drifted lower to test the Strong Support zone between Sensex 27209-27174 and Nifty 8213-8186 which is result of confluence between the Bullish Upward Gap (Sensex 27202-27175 and Nifty 8195-8186), an intermediate low made by Sensex 27209 and Nifty 8195 and 61.8% Retracement of the current rise i.e. Sensex 27174 and Nifty 8213. Even though Friday saw the indices bounce back slightly from the above mentioned support zone, the probability set up points towards a greater probability of breaking this support zone.

On Friday, Nifty opened gap down and completed a bearish breakout to Descending Triangle and the target for that pattern falls at Nifty 7998. The equivalent level for the Sensex is at 26360. Also this gap formed is a Bearish Breakaway Gap and it will act as immediate resistance.

The strong Resistance zone of Sensex 28578-28604 and Nifty 8654-8668 still remain intact which is a result of confluence of 61.8% Retracement and the Tweezer Top. Thus the previous uptrend will resume only if both Sensex and Nifty overcome this strong Resistance zone. Also in the process, a lower top has been registered i.e. Sensex 28578 and Nifty 8654.

This week, both the indices not only breached but also closed below the short term average of 20dma (Sensex – 27856 and Nifty – 8456), the medium term average of 50dma (Sensex – 27840 and Nifty – 8424) and even the long term average of 200dma (Sensex – 28004 and Nifty – 8461). Thus the trend in the short term, medium term and even the long term timeframe has turned bearish. 

Bearish pattern formations still remain intact and hence one can still expect indices to achieve the target of Bearish Rising Wedge pattern which falls at 26049 for the Sensex and 7882 for the Nifty, as well as Ascending Broadening pattern and the target for that pattern is at Sensex 25034 and Nifty 7533. Coupled with this, both the indices had also completed a Head and Shoulders pattern and the target as per this pattern is at Sensex 24486 and Nifty 7425. The above mentioned patterns will fail only if Sensex closes above 29094 and Nifty above 8844.

Options data for August series indicates highest Put Open Interest build-up at the strike of 8200 and highest Call build-up is now at the strike of 8500. Thus Option data suggests a trading range with resistance coming in at 8500 and support around 8200.

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