Markets started the week subdued, losing nearly half a percent amid mixed signals. The initial gains evaporated in no time and Nifty traded with a negative bias to the end. Meanwhile, a mixed trend on the sector front kept participants on their toes, with PSU Banking and IT climbing higher while Metals and Auto fell. The sluggish sentiment continued as markets moved in a narrow range with a bearish bias. Investors are taking a cautious stance as the global macroeconomic scenario remains bleak, while FIIs continued to sell domestic stocks month-to-date, dampening market sentiment. In the event of muted Q3 results, weak budget expectations and a drop in global interest rates, the market expects high volatility as these scenarios wrap the future trend. The decline in WPI inflation to 4.95% and CPI inflation to 5.72% in December shows a steady downward trend in price levels. The importance of this downtrend is that it will allow the MPC to pause after another, say, 25bp rate hike in February. Therefore, higher interest rates will not affect the growth recovery currently taking place in the economy. Benchmark indices closed lower for the second straight session on Jan. 16. At the close, the Sensex was down 168 points, to 60092 and the Nifty was down 61 points, to 17894.
Consequently, the index jumped higher and opened a gap on January 16th. However, the index stumbled near the top of the pattern and lagged in the pattern. We believe that 17850 would act as a sacrosanct support zone for traders and a fresh round of selling is only possible after 17850 is rejected. Below that, the index could slip as low as 17800 -17700. On the upside, 17950 would be the trend reversal level for the bulls and above that the index could rally to 18000 -18200. The Nifty has seen a short-term consolidation over the past few weeks. In terms of price patterns, it has formed a triangle on the daily chart. By the end of last week, the Nifty had formed a base near the bottom of the pattern. Until the index trades above 17850 on a closing basis, the pattern is expected to eventually break out to the upside. The Nifty is set for a larger bounce once it breaks the 18200 short-term barrier. Technically, the market is consolidating within the 17800 to 18200 price range. On the daily charts, the Nifty has formed a bearish candle near the 100-day SMA, which is largely negative. The markets are subject to increasing selling pressure, which shows uncertainty among participants despite favorable signals. We think it prudent to limit positions in the prevailing scenario and wait for a decisive breakout of the 17800-18200 zone at Nifty.
Resistance: 18050, 18150, 18250
Support: 17950, 17850, 17750
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