FIIs enter panic mode; Nifty support seen in 14,200-14,400 zones
Friday was the last trading session of the week and it was also the final trading session of the week. So, we got the weekly as well as the monthly closing. Bears completely dominated Friday’s session as Nifty witnessed a massive fall of 3.76 per cent, which was the sharpest fall since early May 2020 in percentage terms. On a weekly basis, Nifty ended down by 3.02 per cent and despite the ‘black Friday’ on a monthly basis, the index has registered gains of 6.56 per cent.
In the week gone by, the FIIs were net buyers to the tune of Rs 18,169.7 crore; however, there is a catch involved in this number. If we adjust Bosch deal (worth Rs 30,000 crore) and MSCI buying, then the actual number would look completely different, and it would also be a net outflow. Interestingly, the DIIs turned net buyers to the tune of Rs 280 crore in the last week.
In our very first article on Nifty last week, we had mentioned the role of ‘bearish engulfing’ candle at all-time highs. In that, we had emphasised on the point that if we go by the assumption of technical analysis that history repeats itself, we are likely to see a correction of 12-13 per cent. With the bearish engulfing getting confirmation signal on the weekly time scale, it's certainly time for caution as the index has formed a sizable bear candle, carrying lower high and lower low on the weekly chart. Also, on the daily chart, there is a formation of island reversal pattern; however, this island reversal is not a perfect textbook one as this has not been formed right at the top.
Technically, the index has now retraced 50 per cent of the recent upmove and it has decisively closed below the 20-DMA, which is a negative sign. Having said, we believe that going ahead, the zone of 14,200-14,400 is going to act as major support for the index as it is a confluence of the trendline support, joining the lows of October and January as well as 61.8 per cent retracement of the current upmove. Meanwhile, 50-EMA is placed in this zone and the upside gap area of February 2 is also placed in this region. In the current scenario, the index has not corrected more than 8-9 per cent and if we calculate the correction of 8 per cent from the all-time high, it comes to around 14,200.
On the upside, the level of 14,956 should act as a stiff resistance as the 20-DMA is placed at these levels. Only a decisive close above the level of 14,956 would indicate that the bulls are regrouping and challenging the bears.
Two crucial points to watch out for in the coming week are: 1) Flow of funds from FIIs and 2) Bank Nifty. FIIs have been a key force behind the heroic bulls’ run in the Indian markets. However, with bond yields across the globe recovering sharply from the lows and the dollar index also surging, the sentiment worldwide is getting dented. The other driving force is Bank Nifty, which has also slipped below its 20-DMA and it is declining very rapidly at the moment. So, these are the two key monitorable factors in the coming week.