HDFC Securities highlights that the Indian equity benchmark indices witnessed profit taking for the second consecutive day on January 18 on the back of soft global markets. A second round of fall post 1410 Hrs took the Nifty down to close almost at its intraday lows, the average value of the last half hour however was higher. At close, the Nifty was down 152 points or 1.1% at 14281.
 
Volumes on the Nifty were in line with those of the previous two days. Among sectors, Metals, Pharma, PSU Bank, Media, Auto and Realty fell the most. Broader markets performed worse than the Nifty with smallcap and midcap indices down almost 1.8-2.1%.
 

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Shares fell Monday across most of Asia following a fall on Wall Street, but benchmarks in Hong Kong and Shanghai rose after data showed the Chinese economy grew a solid 2.3% in 2020. European equity markets struggled for direction on Monday as strong economic data from China competed with concerns over a double-dip recession in the UK and the eurozone.
 
The near term downtrend in the Nifty has gained momentum on Jan 18 even as the stocks (more so in small and midcap categories) seemed to have run out of steam. In the process the upgap made on Jan 11 has been filled. US markets are closed for Martin Luther King holiday on Monday. Hence our markets may not get any overnight cues from there. The Nifty 14040-14215 band is the next support area. On rises 14358 could act as a resistance.
 
After showing sharp weakness on Friday, Nifty witnessed a follow-through decline on Monday and closed the day lower by 152 points. Nifty opened on a negative note, slipped into weakness in the early part of the session. It later showed intraday range movement with weak bias for some time and made an attempt to show upmove from the lows. The upside bounce attempt has failed and the weakness got intensified in the later part of the session and Nifty closed near the low.
 
The immediate support of 10 day EMA has been broken down at 14350 (after 18 sessions, post 21st Dec decline) and the next lower support of 20 day EMA is placed at 14124. Hence, a close below this area could change the near term trend of the Nifty and that is expected to confirm an important reversal pattern at the highs.
 
Conclusion: The sharp back to back declines (Friday and Monday) seems to have changed the sentiment of the market. A move below 14125 could confirm the reversal pattern and that is likely to trigger more weakness in the short term. Any attempt of upside bounce towards 14400-14450 could run into resistance in the short term. Confirmation of reversal could open an immediate downside target of 13700 for the coming weeks.