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Market outlook: 10,040 key support for Nifty50, breach will kick off bear phase


Indian equity market had a disappointing session on Monday, as Nifty slipped below its crucial 200-DMA. The benchmark was on a downward slope for the entire session and it ended the day losing 100.90 points or 0.99 per cent.

The advance decline ratio remained heavily in favour of the former.

As we approach Tuesday’s trade, we stare at a probable break of key support levels. We are presently dealing with two most important support levels of the recent past.

The first level is 10,163, which is the 200-DMA on the daily chart; and second is the 28-month long upward raising trend support of 10,040. The zones of 10,040-10,163 are expected to provide support to the market, failing which, we will stare at a possible initiation of an intermediate bear trend. Tuesday will see the levels of 10,160 and 10,230 as a potential resistance area. Supports come in at 10,040 and 9,980 zones. There are still chances that the Nifty might hold on to these supports at the close.

The Relative Strength Index (RSI) on the daily chart is 34.0379. A bullish divergence is observed. Nifty formed a fresh 14-period low, while RSI did not. The daily MACD has reported a negative crossover. It is now bearish while trading below its signal line. If we look strictly at the pattern analysis, though the Nifty has ended below its 200-DMA, it still stays within its filter.

Further, it also eyes another important pattern support of 10,040, which remain in very close vicinity. On a theoretical note, Nifty still has chance to avert more weakness if it manages to crawl above 200-DMA again.

Overall, it would be extremely crucial to see how the markets behaves vis-à-vis the levels of 10,040-10,160 on a closing basis. The Nifty will be able to avert the weakness if it manages to crawl back above these levels.

However, at the same time, we now have to take into account the fact that if the levels of 10,040 is significantly breached, we are staring at some prolonged weakness and the levels of 200-DMA will become a resistance for the market in the immediate short term.

We advise refraining from taking any major directional view until a validation of the current trend comes.

A highly cautious view is advised for tomorrow.

STOCKS TO WATCH: Amid chaos, fresh longs were also seen being added in stocks like Nalco, SRF, Tata Communications, Divi’s Labs, GAIL, Reliance, Power Grid, Star, Marico, Grasim, Petronet, Larsen & Toubro and Titan.

(Milan Vaishnav, CMT, MSTA is Consultant Technical Analyst at Gemstone Equity Research & Advisory Services, Vadodara. He can be reached at [email protected])

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