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Sensex (55669) / Nifty (16678)

After a mid-week break, our markets started the session on a pleasant note tracking favorable cues from the global bourses. However, the gains did not last too long as we witnessed a gradual correction in the subsequent hours . The benchmark index Nifty seemed a bit settled around 16900 but a surprising rate hike by RBI triggered massive sell off in last hour and a half to breach all key levels one after another.

The index has breached the support zone around 16800 and has plunged downwards in a decisive manner. In a normal scenario, we would have interpreted this as a ‘Pennant’ breakdown and expected much lower levels; but on this occasion, we refrain from this approach. The rationale behind this is the overall oversold positioning of the market and the move has come after a surprising event. In addition, the global event US Fed meeting is slated and it would be important to see how market reacts to it as well. Since such developments can be deceptive at times, we would rather hold our horses for a day or two and would assess the overall situation before arriving at any directional view. For the coming session, 16800 – 16900 have now become immediate hurdles; whereas it would be interesting to see how Nifty behaves around 16600 – 16500.

Exhibit 1: Nifty Daily Chart

Nifty Bank Outlook - (35265)

Bank Nifty started on a positive note however it lacked followup movement and then it slipped into the negative territory. For the major part, it consolidated in a range and was relatively outperforming the benchmark however during the penultimate hour a surprising rate hike by RBI dragged the index lower to eventually end with a loss of 2.49% at 35265.

With yesterday's selloff, the bank index has broken below the key support level that was holding for the last few weeks. This definitely does not augur well for the bulls however since for the majority part the bank index was showing relative strength and the breakdown was followed by a surprise announcement it would be crucial to see the follow-up movement. Going ahead, the next support is placed around the previous swing low at 35000 followed by 61.8% retracement levels at 34680. On the flip side, the 35500 - 36000 zone is likely to act as resistance. We sense volatility is likely to remain high on the weekly expiry and hence traders should avoid undue risk.

Exhibit 2: Nifty Bank Daily Chart

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