Index outlook: Will Q4 earnings be a bright spot for market amid Covid surge?

The domestic equity bellwether indices, the Sensex and Nifty 50, began the past week on a strong footing and trended upwards until they met with crucial resistances and gave away some of the initial gains on Friday. Positive earnings announcement by some of the bluechip stocks can add momentum in the coming week. Auto sales data of April, rupee movement and surging Covid cases are other events that need attention. On the global front, key data from the US on April month jobs report and inflation numbers will be in focus.

Nifty 50 (14,631.1)

Last week, the Nifty 50 started on a positive note and continued to trend upwards until it encountered resistance at the 15,000-mark on Thursday after recording an intraweek high at 15,044. Thereafter the index gave away some of the initial gains on Friday by declining 1.7 per cent. Overall, the index had advanced 289 points or 2 per cent in the past week amid volatility.

The week ahead : After indecisiveness, the Nifty 50 began to trend upwards in the past week and tested resistance at 15,000. This level will continue to act as a vital barrier in the near term. An immediate resistance is placed at 14,870. A strong break above 15,000 is needed to alter the downtrend that has been in place from the February high of 15,431. An emphatic break-out of 15,000 will reinforce the bullish momentum and take the index northwards to 15,200 and 15,400 levels over the short term.

The daily price rate of change indicator has entered the positive terrain, indicating emerging buying interest. The relative strength index on the daily chart features in the neutral region and the weekly RSI is on the brink of entering the bullish zone from the neutral region.

On the downside, if the recent fall extends, the index can take support at around 14,500 and rebound higher. In that case, the Nifty 50 can be range-bound between 14,500 and 15,000 for a while before moving in a clear direction. Key supports below 14,500 are at 14,250 and 14,000 levels. A conclusive break-out of 14,000 will reinforce the downtrend and pull the index lower to the subsequent key support that is in the range of 13,500-13,600. Supports then are at 13,330 and 13,000 levels.

Medium-term outlook : Both the intermediate and medium-term trends are up for the index. The intermediate-term uptrend will remain intact as long as the index trades above the vital base level of 12,750. Only a strong fall below this base level is required to undermine the uptrend and pull the index down to the next supports at 12,400, 12,260 and 12,000 over the medium term.

As long as the index trades above 14,000-mark, the medium term uptrend that has been in place since the December 2020 low of 13,131 levels will remain intact. A decisive breakthrough of the current resistance at 15,000 is required to underpin the bullish momentum and take the index higher to 15,200 initially. A further rally above this hurdle can take it higher to 15,500 and then to 15,600 in the medium term. Next supports below 14,000 are placed in the 13,500-13,600 band and 13,000.

Sensex (48,782.3)

In the midst of volatility the Sensex had advanced 903 points or 1.89 per cent in the previous week. It tests resistance at 50,000, the psychological level to note. An emphatic breakthrough of this hurdle can strengthen the medium term uptrend that has been in place from December 2020 and take the index higher to 51,000 over the short term. Such a rally will also alter the downtrend that begun from the February high of 52,516 and pave the way for an up-move to test subsequent resistances at 51,400 and 52,000. We re-affirm that a crucial break-out of 52,000 is needed to strengthen the uptrend and take it higher to 53,000 and then to 54,000 over the medium term.

On the other hand, the index is likely to tests a key base at around 48,400. A fall below this base can lead to test the next vital support in the band between 47,700 and 48,000. An upward reversal from this band can keep the index in a sideways range between 47,700 and 50,000 for a while. But a slump below 47,700 will bring back selling pressure and pull the index down to 47,000 initially and then to 46,000 in the short to medium term.

The intermediate-term uptrend that began from the September 2020 low of 36,495 will remain intact as long as the index trades above the base support level of 45,000. Next supports are at 44,520 and 44,000. Investors with a long-term horizon can stay invested with a stop-loss at 40,000.

Nifty Bank (32,781.8)

The Nifty Bank index advanced 1,059 points or 3.3 per cent in the past week. Immediate support is at around 32,500 where the 21-day moving average is paused and next base is at 32,000, which are likely to cushion the fall. On the upside, the index needs to move beyond the immediate resistance at 33,500 to strengthen the up-move and take it higher to 34,000 levels. Traders with a short-term view can go long above 33,500 levels with a fixed stop-loss.

A decisive break-out of 34,000 is required to change the short-term downtrend in place since the February high of 37,708.7. In that case, the index can trend upwards to 34,800-35,000. Thereafter the resistances are at 36,000; 36,500 and 37,000. We restate that the intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will continue to remain in place as long as the index trades above 29,000. Subsequent supports are placed at 28,500 and 28,000.

Conversely if the index tumbles below the immediate support level of 32,000, it will bring back selling interest and drag the index lower to 31,000 and then to 30,000. Next supports are at 29,000 and 28,000 levels.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online. )

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