NIFTY Index Chart Analysis
Nifty may see some short-covering
More than the geopolitical tensions between North Korea and the US, the markets panicked due to the verbal slugfest between Donald Trump and Kim Jong-un, the latest one being North Korea's allegation that Trump had declared war against the country. However, the actual culprit of the free fall was an abrupt surgical strike announced by the country on Myanmar, which washed off major support levels. Further, Indian macroeconomic numbers precipitated the downfall. The fiscal stimulus panic is in the air where the consequences of decline in GDP growth to 5.7% in Q1FY18 still linger on in the economy. Furthermore, the economic growth is likely to be moving at a slower pace. Moreover, the fear of fiscal deficit overshooting the target for the current financial year is real as the deficit has increased to 28.5%, already reaching 92.4% of the full year target.
The provisional add-ons to the weakness in the markets could be ahead of September F&O expiry. Moreover, RBI policy review and corporate earnings data are at the doorstep, which are spreading caution in the markets.
The major Indian benchmark Nifty started profit-booking on the same day it hit all-time high levels at 10178/10179. Thereafter Nifty witnessed correction for five consecutive trading sessions, mostly supported with rising volumes. On September 26, Nifty hit just below the previous day’s low and recovered to close flat, which has formed a kind of double bottom pattern on the daily time frame. However, the recovery was a breather and Nifty nosedived yet again, breaching major supports at 9785, followed by 9740.
In case Nifty attempts short covering at the current levels, we hold 9820-9890 as the immediate resistances, followed by 9945 in the form of a pullback, which is the 50% retracement level of the downward rally for the Nifty. If Nifty continues with the fall, we hold 9685 as the crucial support.
An immediate bounce back to all-time high levels or beyond that is tough, but strong domestic cues at the start of October month followed by festive season may bring in some optimism in the markets. Hence, considering the medium-term time frame, we hold 10200-10300 as the resistances, followed by 10700. On the downside, 9685 followed by 9640 would act as crucial support level, as below that level Nifty would enter the negative trend on provisional basis. Nevertheless, though it is a crucial period for traders and investors, stock-specific buying would help. Moreover, if Nifty surges to 10000-10040 and retreats, traders would do well to rather stay away and observe the move, rather than getting their stop losses hit before a bounce.