Index Outlook: In a recovery mode?

Domestic equity indices, both the Nifty and Sensex, snapped their four weeks of losses and moved above key levels on Friday. The possible negative impact of demonetisation kept the indices choppy in the initial part of the week. However, IT and Pharma stocks witnessed strong gains on Friday, on expectations that a depreciating rupee will aid earnings, thus boosting sentiment. Going ahead, November auto sales number and rupee movement can set the tone for the week. Globally, OPEC meeting and US initial jobless claims can drive the global markets.

The slump on Monday took the Nifty 50 index below the key support level of 8,000. After a volatile movement, the index surged 1.8 per cent on Friday recouping the initial loss.

This week : Even though the index bounced up and managed to close above the key support level of 8,000 , the overall short-term trend is still down. The index has formed a hammer candlestick pattern in the weekly chart which has bullish implications. The index needs to decisively break the immediate resistances in the band between 8,150 and 8,200, where its 200-day moving average hovers, for further bullish momentum. Such a rally can take the index higher to the next resistance at 8,300 levels in the near term. To reduce the selling pressure and bring back buying interest, the index needs to emphatically move beyond 8,300, which is a significant resistance. Subsequently, the index can trend upwards to 8,400 and 8,500. The indicators and oscillators in the daily chart continue to show weakness. The index can re-test the immediate support at 8,000 in the near future. Traders with a short-term perspective should tread with caution until a clear direction emerges. A strong tumble below 8,000 can pull the index down to 7,900 and 7,800.

Medium-term trend : Since the September peak of 8,968, the index has been on a medium-term downtrend. However, it tested a significant long-term support level of 8,000 in the previous week and managed to hold it. As the index fell sharply from 8,500 to 8,000 in a short span of time, we can’t rule out a minor corrective rally at this juncture.

The corrective rally already appears to be in motion with Friday’s strong gains. This upmove can extend to 8,300 in the coming weeks. Nevertheless, if unable to sustain the corrective rally, the index can retest the support level of 8,000 once again. Key supports at 7,700 and 7,600 can come into play on a decisive downward break of 8,000 levels. Conversely, only a strong rally beyond the key resistance level of 8,500 is required to alter the downtrend and take the index upwards to 8,700 and then to 8,900.

Strong 456 points or 1.8 per cent rally on Friday has helped the index move back above the key support level of 26,000. It added 166 points or 0.6 per cent. The index can extend its upmove and test the immediate resistance as well as 200-day moving average at around 26,500 in the ensuing trading sessions. A decisive break of this level is needed to push the corrective rally further to 27,000 or even to 27,500 in the short term. However, failure to move beyond 27,000 can keep the index in a sideways range between 26,000 and 27,000 for a while. On the downside, a strong decline below 26,000 will pave the way for continuation of the downtrend to 25,500 and then to 25,000 in the medium term.

The Bank Nifty index plunged 451 points or 2.4 per cent in the prior week conclusively, breaking a key support at 19,000. This fall has strengthened the short-term downtrend that has been in place since the index encountered a key resistance at 20,000 in early November. Inability to move beyond the immediate resistance level of 18,700 can pull the index down to 18,300 and then to 18,000 levels in the short term. Traders with a high risk appetite can initiate fresh short positions on a downward reversal from 18,700 with a fixed stop-loss at 18,800. Further decline below 18,000 can pull the index down to 17,800 and 17,600 levels. But a strong rally beyond 19,000 can bring back buying interest that can take the index slightly higher to the resistances at 19,300 and 19,500. Next significant resistance is at the 20,000-mark.

Last week, the Dow Jones Industrial Average continued its upmove by recording new highs. It gained 1.5 per cent to close at 19,152. However, the daily indicators continue to feature in the overbought zone and have started showing signs of weakness. Hence a near-term corrective fall can’t be ruled out at this juncture. The index can decline to the immediate support at 18,800 levels. Further decline below this level can drag the index down to 18,600 in the coming weeks. Next supports are at 18,400 and 18,300. Resistances are at 19,200 and 19,400.

The Nikkei 225 index jumped about 2 per cent last week, extending its uptrend. It can continue its uptrend to test 19,000. Strong resistance beyond 19,000 is at 20,000. Key supports are at 18,000 and 17,500. A conclusive fall below 17,500 is required to mitigate the uptrend and pull the index down to 17,000.

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