Most experts feel that investors should tread with caution and maintain a strict stop loss below 10,620-10,600 in case they are long on the index.
The devastating terror attack last week in Pulwama which took lives of at least 40 CRPF personnel left the nation in a shock. Tremors of the same were felt on Dalal Street as Indian market observed its worst week since October 19, 2018 when Nifty fell 2.65 percent.
Both Sensex and Nifty are trading below their crucial psychological support levels which were broken in the week gone by. The S&P BSE Sensex slipped below 36,000 while Nifty50 broke below 10,800 levels. The index is trading well below its crucial short and long-term moving averages.
For the week ended February 15, the S&P BSE Smallcap index and the S&P BSE Midcap index dropped 2.96 percent and 2.71 percent, respectively, compared to S&P BSE Sensex and Nifty50 which fell by about 2 percent each in the same period.
Consistent selling seen in Indian market last week pushed the indices towards crucial support levels. Most experts feel that a technical bounce back could be on the cards.
“There is a palpable sense of nervousness in case the situation at the border continues to deteriorate, and this comes at a time when there is heightened sense if risk aversion among investors with respect to equities in the run-up to general elections,” Ajay Bodke, CEO & Chief Portfolio Manager (PMS), Prabhudas Lilladher told Moneycontrol.
“The confluence of these two factors will keep investors on the edge, and hence, one needs to tread cautiously in the short term,” he said.
The tensions between the two nations are on the rise, especially after Prime Minister Narendra Modi in a speech on February 15 said those responsible will pay "a very heavy price" and security forces will be given a free hand to deal with terrorists.
In a hard-hitting speech, Modi said the "blood of the people is boiling" and forces behind the act of terrorism will definitely be punished.
Over the weekend, the government hiked the basic customs duty on all goods imported from the neighbouring country to 200 percent with immediate effect. India also revoked the 'Most Favoured Nation' (MFN) status to Pakistan on February 15.
Most experts feel that investors should tread with caution and maintain a strict stop loss below 10,620-10,600 in case they are long on the index. After six straight sessions of decline, there is a high probability of a technical pullback.
After recording an ‘Evening Star’ formation at the end of the previous week, traders were encouraged to take short positions and as a result, Nifty saw a deeper correction at the end of this week.
“In a short view, Nifty has to sustain around 10,700 level but the attack on CRPF on weekend created new sentiment towards downside in Nifty futures on the concern of govt’s hawkish stance,” Debabrata Bhattacharjee, Head of Research, CapitalAim told Moneycontrol.
“More shorts were created on breaking of every support level on Friday (February 15), and as compared to the cash market, the futures market corrected more. This happened due to a sentiment pull over the attack on CRPF caravan in J&K,” he added.
Bhattacharjee further said that the benchmark index, Nifty50, has support zone at around 10,600-10,500, which is multi-day support since November 2018. It is likely if this range breaks we will hit 10,200 in the very short term.
India VIX moved up by 5.72 percent at 16.46 levels in the last week while Put Call Ratio fell from 1.59 to 1.30 levels, the spurt in VIX with a decline in PCR OI suggests that supply pressure is intact in the market at every important resistance zones.
On the options front, maximum Put OI is placed at 10,700 followed by 10,400 strikes while maximum Call OI is placed at 11,000 followed by 10,900 strikes. Put writing is seen at 10,300 followed by 10,500 strikes while Call writing is seen at 10,700 then 10,800 strikes.
“Option band signifies a lower shift in the trading range between 10,600 and 10900. Nifty has to negate the formation of lower highs by moving above 10,785 zones to witness a bounce back towards 10,850 then 10,929 zones while on the downside support exists at 10,620 then 10,580 zones,” Chandan Taparia, Associate Vice President, Analyst-Derivatives, Motilal Oswal Financial Services told Moneycontrol.
“The index is now near major support zones and lower part of the range which could decide the next leg of the rally, so either there could be a small bounce or else the next leg of fresh break down,” he said.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.