Covid fears could drag markets down in coming week

The week went by was full of roller coaster ride on the Dalal Street. We witnessed wild swings in the benchmark indices where in the nifty index initially sneaked below 16,800 mark then recovered sharply towards 17,500 and in the end closed near 17,200 mark with a gain of around 1%.

At the time of a breakdown below 17,600 we had a target of 16,600 to 16,800 in Nifty and that is already met but the volatility in the markets was due to the overhang of Covid fears and fed statement of faster tapering program.

Bears could drag index lower

At this point in time, the index is hovering at the support formed by rising parabolic trend line formed by joining the lows since April 2020. In addition, the support coincides with placement of Kijun of Ichimoku indicator on the weekly scale. Also, the entire Bull Run from 7,500 in Nifty had a corrective move between 8 to 10% and the recent fall from 18,600 stands close to 10%. Thus going ahead; low of 16782 would play a critical role for the coming month.

A weekly close below the same might reinforce the bears to drag the index much lower. On the upside, only a move above 17,500 would reverse the trend. One important observation is that the volatility index  has confirmed a range breakout above 20 mark.

If it sustains here then it might bring more volatility in the coming week. Anything above 25 in volatility index could be further precarious.

With regards to Nifty bank index; 35,000 to 35,400 could be a very decisive level for the index since that is a zone where 200 DSMA (Digital Sense Multiple Access) is placed and there any multiple supports. Bulls would be hopeful that the fall might get arrested there.

A breach of 35,000 would reinforce the bears to drag the index much lower. On the contrary, upside would resume only above 37,000 mark. On the whole, once again we expect the banking index to outperform from here on and help to improve the overall sentiments.