Nifty likely to decline in the absence of buying support

The last week saw a bearish hue prevail over the markets as inflation worries nibbled into the confidence levels of the bulls.
That the domestic markets bucked the bullish overseas cues underscores the nervousness prevailing here.

The market internals indicated a negative market breadth as the weekly combined exchange advance decline ratio stood at 8,799 : 14,084 and the capitalisation of the breadth was also negative as the commensurate figures were Rs43,020 crore : Rs44,594 crore.

The NSE lost Rs246,578 crore in market capitalisation on a week-on-week basis. In terms of sectoral performance, the decline was led by the banking sector, followed by the technology and mid-cap stocks.

The foreign institutional investors were net sellers to the extent of Rs2,422.6 crore during the week up to Thursday and that saw the rupee close at the 45.36 levels vis-a-vis the US dollar (previous week 45.38).

The Dow Jones Industrial Average closed at its highest weekly close since week ended June 20, 2008, and that highlights the calibrated rally that is underway in the US markets.

The UK FTSE100 remained a relative underperformer compared to its US peers and exhibited an inside pattern on the weekly charts.

In Asia, the Hong Kong market remained outperformer and the Japanese and Singapore markets consolidated.

The overseas cues remain positive-to-neutral at best and the domestic markets need to seek a feel-good factor from internal developments to rally from hereon.

Technically, the domestic markets are in a short-term declining channel and the possibility of overhead supply is likely to keep the bulls on the ropes.

The previous inflection point of the Nifty spot 5690 level has been violated and the Nifty is likely to decline in the absence of buying support.

The weekly range advocated for the Nifty between 6075 and 5700 was violated as the index overshot the support by over 1%.

This week is likely to witness a resistance at the 6075 levels provided the bulls manage to keep the Nifty above the 5800 levels.
In case of declines, the 5475 level is a support where fresh buying cum bear covering is likely to emerge.

The markets will remain under pressure as long as the Nifty remains below the 5750 levels. The outlook is that of caution and I recommend trading on thin exposure till stability returns. Focus on capital preservation for now.