Weekly Market Outlook for 22nd August to 26th August

The markets continued its positive momentum in the week gone by and it almost reclaimed the 18000 mark. However, we witnessed sharp sell-off in the last trading session of the week and the Nifty lost most of its weekly gains to end above 17700 with marginal weekly gains.

Nifty Today:

Our markets have seen a sharp up move in the last one and a half month wherein the Nifty has rallied from 15200 to almost 18000 without any meaningful correction. The momentum readings entered the overbought zone, but the index crept higher within the overbought territory in last few days.

                                                                     Nifty resumes its corrective phase, time to turn cautious

However, the readings had reached the inflection point where a time-wise or a price-wise correction was much required and the index started the same in Friday’s session. Nifty as well as Bank Nifty along with some other sector indices witnessed sharp correction on Friday, indicating start of the corrective phase. Also, if we glance at some of the derivatives data, the market was not correcting in overbought mainly because of lack of sellers as both the FII’s as well as Client section had long positions in the index futures segment and none were looking to unwind. But on the weekly expiry day, FII’s unwound some of their longs and even formed short positions which was the first sign of reversal coming. The overbought momentum readings on the lower time frame charts then gave a negative crossover which was another sign and a weekly close below the support of 17800 has now given a confirmation to the reversal. So traders should not be in a hurry to do bottom fishing here as we could see further price wise correction in the near term. Any pullback moves towards 17840-17900 should be used as an opportunity to lighten up longs or even form short positions. On the lower side, we expect the market to correct towards 17550 first where support is placed on the hourly charts, while a break below the same could then lead to further correction towards the daily chart support at 17330.

The Dollar Index seems to have resumed its uptrend and as the equities generally have inverted correlation to the same, this would be an added concern for the market. So traders should be watchful on several factors which are hinting cautiousness for equity markets i.e. Rising Dollar Index, short formation in derivatives by the stronger hands, negative crossover of momentum readings from overbought zone and important price supports being broken.