More pain likely as Nifty may drop to 4,550

This week the markets dropped sharply on Friday, despite the Reserve Bank of India pausing on rate increases and signalling likely easing of the monetary policy, going ahead. While the global scenario remains unchanged, political worries at the domestic level once again irked investors.

The Sensex touched a high of 16,360 early in the week; thereafter, it dwindled lower due to persistent selling pressure. The BSE benchmark index finally ended with a loss of 734 points at 15,466.

Among the index stocks, Larsen & Toubro and Sterlite were the major losers, down 12 per cent each at Rs 1,076 and Rs 89.40. SBI, DLF, BHEL, Tata Steel, ICICI Bank, Tata Power, HDFC Bank, Jaiprakash Associates, Bharti Airtel, Mahindra & Mahindra, Tata Motors and Hero MotoCorp were down 6-10 per cent each. On the other hand, Hindustan Unilever and Cipla were the only notable gainers.

Last week, we had mentioned there could a possibility of a sharp year-end rally, only if the index manages to sustain above the 16,070-16,125 support zone. However, this was not to be, as on Monday it plunged below the support zone, and found difficult to regain it.

On the downside, it was mentioned the Sensex may slide to 15,275-odd levels; with a low of 15,425 last week, it is now within striking distance of those levels. Next week, it may seek support around 15,170-15,275; in case this fails, we may see a test of the 15,000-mark.

Since the Fibonacci monthly charts indicate the Sensex has given a buy signal earlier this month, the probability of getting support around the 15,275-odd levels remains high. Also, since the weekly close was below 15,635, at the time the bears seem to be stronger. When the index sustains above 15,635, we could see some fresh hopes build-up of a meaningful pullback.

The NSE Nifty moved in a range of 300 points: From a high of 4,910, it tumbled to a low of 4,628. The index finally ended with a loss of 215 points at 4,652.

Nifty has closed precisely at the key level of 4,650. A weekly close below 4,630 will now spell fresh trouble for it, with downside targets of 4,000-3,700-odd levels.

However, in the recent past (August and November), we have seen it bounce back sharply, after giving a weekly close below its long-term (200-weekly moving average (WMA)). In the preceding two instances, it had jumped five and seven per cent, respectively, in the following week.

Now, it is just a matter of time to see if the bulls will be third-time lucky. Although, one must admit, this time around the odds are stacked fairly against the bulls, hence, further panic cannot be ruled out. The moving average convergence/divergence and the stochastic slow, both, also favour further losses.

Next week, the Nifty may seek support around 4,550-4,475, and on the upside, it may face resistance around 4,760-4,825. The major hurdles are likely to be 4,770 (200-WMA) and the 5,000-mark (20-WMA).