Index Outlook: A turbulent week ahead

Following a lacklustre start and sideways movement around the key resistance, the broader indices — the Nifty and Sensex — fell 1 per cent on Friday, dragged by banking and metal stocks.

Positives such as the GST Council breaking deadlock over issues of administrative control over assesses, and broadly agreeing to rollout the GST from July 1 and the tax relief for foreign portfolio investors (FPIs) played a small role in supporting the indices.

However, International Monetary Fund (IMF)’s 100 basis points cut in growth forecast and poor earnings from financials and sharp decline in metals sector stocks on Friday, pulled the market down.

In this truncated week, the market can remain volatile amidresults announcement, January month derivatives expiry on Wednesday and the upcoming Budget 2017.

Moreover, investors across the globe could react to Trump’s inaugural speech on Monday and give some direction to markets. The Nifty fell 51 points or 0.6 per cent and the Sensex slipped 203 points or 0.7 per cent last week, dragged by key stocks such as RIL, Coal India and Axis Bank.

Last week, the Nifty 50 index struggled to decisively move beyond the resistance level of 8,400 levels.

This week: Though the index has been on a short-term uptrend since late December 2016 and hovers well above its 21 and 50-day moving average, the crucial barrier at 8,400 is becoming stronger.

The daily relative strength index has moved back into the neutral region from the bullish zone and the weekly RSI continues to hover in this neutral region.

Also, the daily price rate of change indicator is displaying a negative divergence and is likely to enter the negative territory if the fall continues.

Having said that, the buying interest is emerging as the weekly price rate of change indicator enters the positive territory, giving some relief.

Further, the 200-day moving average poised at around 8,300 could buttress the declines. Next key support is at 8,250. We reiterate that traders with a short-term perspective can make use of the choppiness to initiate fresh long position with a stop-loss at 8,200.

Resumption of the uptrend and breach of the 8,400 level can take the index higher to 8,500 and 8,600 levels in the short term.

Significant supports below 8,200 are at 8,100 and 8,000. Fresh long positions should be avoided if the index emphatically slumps below 8,200 levels.

Medium-term trend: The index continues testing the resistance level at 8,400. It also needs a strong breakthrough of 8,500 to alter the medium-term downtrend.

In that scenario, the index can rally and test the next key resistances at 8,700 and 8,900.

But a conclusive fall below the key base level of 7,900 can strengthen the selling pressure and pull the index down to 7,800 levels. Subsequent supports are at 7,700 and 7,600 levels.

The index retreated 203 points last week and now tests the 200-day moving average as well as the key support at 27,000. Yet, it faces selling pressure at the key resistance level of 27,500. The short-term uptrend will be in place as long as the index trades above the crucial support level at around 26,700. Immediate support is placed at 27,000. A fall below this level can find support at 26,700. Further decline below this level can increase the selling pressure and drag the index down to 26,500 and 26,230 levels. However, decisive break-out of the vital resistance level of 27,500 will bring back buying interest and change the medium-term downtrend. The index can move northwards to 28,000 and 28,270 in the medium term.

The Bank Nifty marginally slipped 91 points amid volatility in the previous week. The index now tests a faces a significant resistance at 19,000 levels. Inability to move beyond the 19,000-mark strengthens the resistance level. Though the near-term trend is up, selling pressure is witnessed at key resistance level. Traders should tread with caution in the coming week. Strong breakthrough of 19,000 can take the index northwards to 19,300 and 19,500 levels in the short term. Key immediate supports are at 18,700 and 18,500. However strong plunge below 18,500 will bring back selling pressure and pull the index down to 18,270 and 18,000 levels in the short term.

The Dow Jones Industrial Average fell 58 points to close at 19,827.2 last week. Key resistance is at 20,000 and the index struggles to surpass this level.

A slump below the immediate key support of 19,500 can pull the index down to 19,200 and 19,000 in the short term. An emphatic rally beyond 20,000 can take the index to new highs.

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