Index Outlook: Tread with caution

Both domestic as well as global factors kept the Nifty and Sensex volatile last week. After an initial up-move, key resistance limited the upside for the benchmark indices.

Some key positive data such as strong GDP numbers and core sector growth was offset by weak Nikkei India Manufacturing Purchasing Managers Index (PMI) for November, coupled with decline in November auto sales. Continued FPI outflows weighed on the indices. Investors keenly awaiting the RBI’s monetary policy this week, remained cautious.

Following a three-day rally, the Nifty 50 index managed to close above the immediate resistance level of 8,200. However, disappointing November auto sales data and global concerns triggered selling pressure; the index gave away its initial gains and closed the week on a negative note, declining 27 points or 0.34 per cent.

This week: With the index reversing from the key resistance level of 8,200, the overall short-term trend continues to be down. On Friday, the Nifty 50 index slumped 1.3 per cent, breaching its 200-day moving average poised at around 8,160. This has strengthened the downtrend. Moreover, the daily relative strength index has re-entered the bearish zone from the neutral region and daily price rate of change is on the brink of entering the negative territory.

The weekly volumes have decreased over the past three weeks. The weekly indicators are charting downwards with a negative bias. Short-term outlook is bearish. The index can extend its downtrend and test the immediate support in the 7,930-8,000 band in the near term. Next key supports are placed at 7,900 and 7,800.

Conversely, a strong rally beyond the immediate resistance level of 8,200 can take the index up to 8,300, its next key resistance level. To diminish the selling pressure, the index needs to move beyond 8,300 levels for a short-term up-move to 8,400 and 8,500.

We reiterate that traders with a short-term horizon should tread with caution until a clear direction emerges. Decisive plunge below 7,930 can drag the index down to 7,800.

Medium-term trend: There have been no major changes in the medium-term trend. The index has been on a medium-term downtrend since the September peak of 8,968. In the coming week, the index can test the immediate support in the 7,930-8,000 range and there is a possibility of it moving sideways for a while.

Strong rally beyond 8,300 can push the index northwards to 8,400 and 8,500 levels. Further move beyond the key resistance level of 8,500 will change the downtrend and push the index higher to 8,700 and 8,900 levels.

However, inability to move beyond 8,300 can keep the sideways move intact. Tumble below 7,930 can take the index to 7,800 levels, as it continues its downtrend. Next supports at 7,700 and 7,600 can be tested.

Last week, the Sensex was choppy and closed marginally on a negative note. It slipped by 85 points or 0.3 per cent, mostly dragged by the 1.2 per cent decline on Friday. The index failed to conclusively close beyond 26,500 due to selling pressure at higher levels. Once again, key support at 26,000 can cushion the index.

But a strong plunge below this level will pave the way for a decline to 25,500 and then to 25,000 in the coming weeks. Nevertheless, an emphatic up-move beyond 26,500, where the 200-day moving average is also poised, can bring back buying interest. Next resistance at 27,000 can be tested thereafter.

The bearish momentum continued in the Bank Nifty index as it fell 259 points or 1.4 per cent in the prior week. The index tested the immediate resistance at 18,700 and resumed its short-term downtrend last week. Traders can continue to hold their short positions with a revised stop-loss at 18,600. The index can test the immediate support at 18,000. Strong plummet below this level can pull the index down to 17,800 and 17,600 levels in the short term. Significant immediate resistances are at 18,500 and 18,700. Next resistance is placed at 19,000.

OPEC’s decision to limit production in its recent meeting saw crude oil prices sky-rocket 12 per cent to close at $51.6 a barrel in the previous week. It currently tests a key resistance at $52. Strong breakthrough of this level can take the commodity price higher to $54 and $58. Key supports are placed at $50 and $46.

The Dow Jones Industrial Average advanced marginally to close at 19,170. But the daily indicators feature in the overbought zone and are also displaying negative divergence, implying trend reversal on the cards.

The index can fall and test the immediate support at 18,800. Subsequent supports are at 18,600 and 18,400. Resistances to note are at 19,200 and 19,400.

Last week, the Nikkei 225 index was volatile testing resistance at 18,500. Immediate supports are at 18,000 and 17,500. A fall below 17,500 is required to mitigate the uptrend and drag the index down to 17,000. Resistances are at 19000 and 20,000 levels.

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