In sync with the Nifty 50 index, S&P BSE Sensex has also witnessed profit booking from the higher levels. After making a top of 67,618.35 on 20 July 2023, a retracement followed which dragged the index by around 2,654 points, as of this week’s low.
However, on Friday we saw some buying interest which helped Sensex to jump 0.74% to 65,721.25, paring some of the losses. However, despite a bounce back, traders should not be deceived and start taking long positions again, as per the current state of the markets. The index has started forming a lower low and lower high formation (LL & LH), just like the Nifty 50 index which is the precise structure of a downtrend.
Image Description: Daily chart of Sensex (spot)
Image Source: Investing.com
Currently, there is a stiff resistance at around 66,657, which is the peak marked on 1 August 2023. As long as this level is not taken out, the selling pressure is expected to kick in on the bounce. Alternatively, traders can also look at the sharp falling trendline on the daily chart which is another way to gauge the trend reversal. As per this trendline, the current trend-reversal level is around 66,300.
Hence, traders looking for an early entry for long positions can watch out for this level and it will keep on decreasing as time passes by. However, as long as either of the two conditions are not met - the trendline or the horizontal resistance break, short positions might be less risky.
Now, on the downside, the index can tank to 65,170 - 64,960. This 210-point range is a good support level and might curb the fall. But that should not be deemed as a buying opportunity as the trend structure is negative, rather profit booking on short positions can be done here.
Traders should also note that the RBI’s upcoming monetary policy committee (MPC) meeting is happening on 10 August 2023 which is Thursday (the expiry day for Nifty and Nifty Bank). Therefore, some volatility in the market should be expected.