Analyst Somesh View - Closing Comments on 06th OCT 2021

2021-10-06 17:15:09 By Somesh

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Nifty formed a bearish engulfing candle on the daily chart, threatening the short term trend with sustained supply at higher zones.

Nifty was under pressure from the start of the day and closed a percent down to form a bearish candle after two consecutive bullish candles.

After a positive opening, Nifty index wiped out its early gains and traded lower for the day, settling at 17646 level with a loss of 176 points, while BankNifty ended at 37521 level with a 0.5% fall. All the sectoral indices settled on a negative note wherein Nifty Metal was the prime laggards for the day. 

A number of macro indicators are close to technically critical level potential upside breakouts in Dollar index, Crude and Developed Market bond yields could get confirmed this week. Global backdrop is indeed a somewhat worrisome one with surging energy prices meeting slowing demand conditions, and a global supply chain crunch across basic materials. Should global central banks respond to rising inflation expectations by paring bond purchases & tightening monetary conditions, that could act as a trigger for sudden re-pricing of risk assets across the board.

Domestically, the valuation premium of mid & small caps over Nifty stocks at levels similar to early 2018 imply that incremental money flow is likely to be directed towards large caps; Earnings season coming up is expected to be strong for IT, Banks & Chemicals companies, while Consumer-facing companies (Autos, Discretionary & Staples) are expected to face margin pressure.

On yet another day of volatile trade, Shares took a tumble amid weak global cues after the International Monetary Fund (IMF) said that growth in 2021 would likely fall short of its July forecast of 6 percent.

Weak global markets which resulted in profit booking in metals and IT stocks led domestic indices to trade in red, trimming its early gains. Spike in crude prices is spooking the Indian market while inflation is affecting US bond yields. 

RBI commenced its three-day MPC meeting in which the central bank is expected to keep rates unchanged, however, it is likely to announce measures to gradually pump out liquidity from the economy.

Metals are showing early signs of reversal, while the NBFC space is expected to remain in action. Midcap stocks are expected to continue to outperform.

Strong pressure has been witnessed in the Nifty since the start of the day, resulting index managed to close a day at 17646 with loss of more than one percent and formed a bearish candle after forming two consecutive bullish candle previously. 

Index has formed a bearish engulfing candlestick pattern, which suggests weakness for the coming day.

Moreover, a momentum indicator Stochastic witnessed a negative crossover. In addition, on a four hourly chart the index has sustained below Middle Bollinger Band formation, which indicates further correction but the overall trend is still looking bullish, so every dip would be a buying opportunity for the fresh entry.

Short term, Data parameters suggest positive bias. Immediate support for the index is at 17640, while resistance is expected at 18000 and18200. Buying on dips is advisable.

Nifty continues to be in a medium term uptrend. Expect 18500 to be conquered going ahead.

Markets witnessed profit taking on the back of weak Asian market cues. After the 17775 support breakdown, selling intensified in Nifty stocks. On daily chart, Index has formed a long bearish candle which indicates further weakness from the current level. However, as long as the index is trading above the 20 day SMA, the uptrend texture is intact. 

Market has completed one leg of correction and now the 20 day SMA and 17600 would act as a sacrosanct support zone. 

For day traders, 17750/17815 would be the intraday resistance level. On the flip side, 17600/17540 would be the key support area. Texture of the market is volatile hence quick intraday correction from the resistance levels is not ruled out.

All sectoral indices ended in the red with capital goods, IT, metal, pharma, auto, realty and PSU Bank indices fall 1-3 percent. Midcap and smallcap indices fell 0.5-1.2 percent.


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