Market loses momentum, experts say tread with caution as chances of profit-booking remain high

Market Outlook

The S&P BSE Sensex scaled Mount 56K while the Nifty50 crossed 16,700 levels on August 18. However, the late selloff points towards loss of momentum, at least in the near term.

Experts advise investors to tread with caution as chances of profit-taking remain high, but the long-term trend still remains to be on the upside. Investors can use the dips to enter the markets.

Global markets stumbled, global yields fell and the dollar hit a nine-month peak on Thursday as a double whammy of Fed taper fears and COVID worries.

“The minutes from the Federal Reserve’s July meeting published on Wednesday showed officials expected they could ease stimulus this year, even though there was division over the labour market recovery and the level of risk posed by rising Coronavirus cases,” said a Reuters report.

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Fed taper talks could lead to a knee-jerk reaction on Indian markets on Friday when trading resumes. The market was shut on Thursday on account of a public holiday.

The SGX Nifty was down more than 200 points at the time of writing the article, which suggests a weak opening for Nifty50 on Friday. On the downside, 16,500-16,450 has been providing a cushion for the last couple of sessions , and it is expected to continue with its role of a support zone, suggest experts.

“We remain cautious on the markets as there is no clear direction over the next move. High volatility and profit-taking in broader markets are adding to the participants’ worries,” Ajit Mishra, VP, Research, Religare Broking Ltd, said.

“We suggest investors to remain selective and prefer investing in defensive sectors such as FMCG, IT and Pharma,” he added.

We have spoken to various experts on what should be the trading strategy on Friday.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities

The market has been rallying sharply over the past few sessions and hence investors booked some profit , but not before the key benchmark indices hit fresh record highs in early trade.

After a long time on the  daily charts, the Nifty has formed a bearish candle and intraday charts are also indicating a further weakness from the  current levels.

In the near future, the benchmark index may consolidate between the 16,420-16,700 levels. On the downside, 16,500-16,450 could be the key support levels.

On the other hand, the 16,650-16,700 level would be the immediate hurdle for the index. Below the 16,450 levels, the uptrend could be vulnerable.

Sahaj Agrawal, Head of Research, Derivatives, Kotak Securities  

The Nifty is trading near all-time high levels of 16,500-16,600. There has been mixed sentiment, with midcap stocks underperforming since the inception of the current series. Profit-booking is seen across the broader markets.

We currently maintain a neutral stance on the range with a trading range of 16,300-16,800. IT and FMCG stocks are trading with a positive bias while profit-booking is seen in high beta sectors, metals and realty.

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas

The index witnessed profit-booking from the level of 16,700 after the recent run-up and posted a negative daily close following seven consecutive positive sessions.

On the downside, 16,500-16,450 has been providing a cushion for the last couple of sessions and it is expected to continue with its role of a support zone.

Multiple support parameters like the 40-hour exponential moving average, hourly lower Bollinger Band and a rising trendline are present over there.

Though the overall outlook continues to be positive, the index is expected to form a base near 16,500-16,450 before starting the next leg-up.