Nifty Breaches Crucial Support; Sell on Rallies Advised

Nifty price chart

Indian equity benchmark Nifty 50 has nosedived below the highly-coveted 7000 mark amid a global sell-off and renewed fears over the Indian banking system. Rising bad loans have crippled the banking sector, pushing Nifty down to 6980.95 as of Friday’s close. The benchmark slumped to 6870 at which short-covering emerged, taking the index past 7000 in quick succession. However, the rally soon petered out and Nifty ended the week with a loss of 6.8%.

Nifty is now off roughly 23% from its all-time peak of 9119.20 points. Since then, the index has been sliding as earnings failed to pick up and enthusiasm over the government’s reforms faded. Global turmoil also aided a flight of capital from riskier assets such as stock into safer investments such as US Dollar and Gold.

However, the crucial question before investors now is: To wait or to buy? Nifty’s current PE is 18.67, therefore, it is definitely a lot safer to invest now.

But should you go all in? Or is there room for more downside? Let us find that out with the help of technical analysis.

To serve our purpose, we will be using the weekly Nifty price chart taken from

From the price chart presented, it can be seen that Nifty 50 has decisively breached the strong upward sloping support line, starting since early 2009 to date. The index has closed near the lows of the week, which suggests extreme pessimism.

However, there is some hope. From a short-term perspective, the market seems to have tested its support near 6870, and may not break it in a hurry. A rebound may be around the corner if this support is respected.

In the worst-case scenario, if even 6870 is pierced on a weekly basis, then an absolute carnage down to 6350-6400 can be expected in the next couple of months. If that happens earlier than the expected timeframe, then Nifty would be drastically oversold and a strong technical rebound will follow. Or at least, that’s what we hope for!

We advise investors to short the rallies by placing a stop-loss above 7500 by maintaining a risk-reward ratio of 1:2.5.