Nifty closes at a crucial level, what can we expect?

Published October 5, 2018

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What happened yesterday? Sell-off! And it was across sectoral indices. As per NSE data, the only index that was up among the Broad Market Indices was India VIX, up by 4.40 percent and closing at 18.9150, but still lower than its 52 week high of 24.0350.

Nifty 50 (NIFTY.NS) Close: 10 599.00

Nifty 50 index was down 2.39 % and closed at 10599.25 points with major selling coming in last 20 minutes of trade after announcement from the government. Oil stocks were battered with stocks down up to 20 percent. But what is hopeful here is that Nifty 50 index closed on Thursday just above its lowest point since June 28 this year. I have some arguments about being optimistic or pessimistic on the Index.

Positives I see

On March 23rd Nifty made a low of 9951.90 and just after 5 months it established a high of 11760.20 that is up by 1808.30 points. If we do some mathematics, this downfall from the peak to yesterday of 1219 points was a 67 % correction from the top. Should we be optimistic?

Now if we look at the medium term chart (or the long term chart on Investtech’s website), Nifty is still holding above the uptrend line. Positive sign. Though it has just broken below its 200 days moving average, question is how long can it sustain below it. On two previous occasions the Index had ditched the moving average and bounced back. Good argument!

On the short term chart (available on our website), as I mentioned earlier, Nifty has closed 10 points above its June 28th close which was 10589. May be it finds some solace and gets a support here.

Another argument could be that it closed almost at a round figure. What can we make out from it?

Negatives

Index has closed above its 200 days moving average. But I have given a counter argument to that.

Another major drawback can be the gap down with which Nifty 50 opened on Thursday. As per theory of gaps/windows, a gap is open until it is filled and the instrument closes above or below to cover the entire gap.

One can argue that the momentum indicator RSI is under 30. But I will avoid it this time as theory defies practical research done behind the indicator by our expert researchers. More can be read here.

Hence, my subjective conclusion for Nifty 50 would be that the index must close above 10850 to keep our hopes positive and eventually move above 11120. Further there is support around 10440 levels. A break and close below this level can lead to fresh selling.

It would be interesting to see what is in store for the Index and stocks when the market opens on Friday and in the coming days.

Until then I wish you all safe trading!

Investtech's outlook: Neutral

The analyses are based on closing price as per October 4, 2018.