Nifty Outlook

The Nifty reversed from the intra-week low of 7,691 to near the 8,000 mark again.

The week ahead: 

The Nifty is once again drawing close to the important resistance zone that exists between 8,000 and 8,100. As explained earlier, there are multiple resistances converging here — one, the previous peak formed at 8,055 and, two, the floor of the gap formed on August 24 at 8,060 and, three, 38.2 per cent retracement of the entire fall from 9,119 peak at 8,138.

These resistances make the area between 8,000 and 8,150 a formidable one. Short-term investors should make fresh purchases only if the index manages a strong close above 8,150. Traders can initiate fresh shorts if there is another downward reversal from this zone.

Strong break above 8,050 can take the index to 8,207. But the ceiling of the gap at 8,225 has to be closed to signal that the worst is over for the index.

Short-term supports for the Nifty are at 7,853 and 7,736. Break of these levels can take the index to 7,688.

Medium-term trend: 

We retain a bearish medium-term view for the Nifty. A three wave A-B-C correction appears to have ended at 7,539 in the index. The ongoing move could either be:

a) A pull-back before the next leg downward starts;

b) Building of a base by the index before it launches its next leg upward.

The inability to move beyond 8,100 will point towards the first count whereas a strong close above 8,100 will mean that the correction is complete.

It is best to see the movement over the next couple of weeks before drawing a conclusion on the medium-term trajectory of the index. The support in the band between 7,380 and 7,500 should support the Nifty even if it starts declining rapidly. The outlook will worsen only on an emphatic fall below 7,400.