Index Outlook: All eyes on Q4 earnings

Last week, the indices opened with a gap-up and continued to trend higher, backed by strong rally in blue-chip stocks such as L&T, Reliance, Bharti Airtel and Wipro. The Sensex briefly crossed the 30,000 mark on Wednesday, but came under pressure, post the RBI policy on Thursday.

The central bank, as expected, kept its key policy rate unchanged at 6.25 per cent, while raising reverse repo rate to align money market rates to the policy rate.

The RBI continued to highlight upside risks to inflation, indicating near zero possibility of further rate cuts.

The market witnessed a sharp fall on Friday, taking cues from weakness in global markets. US missile strikes on Syria stoked fears of a geopolitical flare-up, triggering profit booking in the domestic market.

Nevertheless, the Nifty 50 and the Sensex managed to record their second straight weekly gain by climbing 0.26 per cent and 0.29 per cent correspondingly.

All eyes are now on the March quarter results, that will be kicked off by Infosys on April 13. This will set the direction for the market in the coming weeks.

The index recorded new high of 9,273.9 last week and stayed volatile.

This week: The Nifty 50 surpassed its immediate resistance in the 9,200-9,218 range initially. But this implies that the 9,200-9,218 range is a significant resistance to watch in the coming weeks. We reiterate that a conclusive break above this resistance zone can take the index higher to 9,286 and 9,353 levels in the near future. However, geopolitical concerns can keep the index volatile. The daily indicators such as price rate of change and moving average convergence divergence display negative divergence implying short-term trend reversal on the cards. The weakness and negative divergence is also visible in the weekly indicators as well.

Failure to rally above the key resistance band between 9,200 and 9,218 once again can pull the index lower to 8,950 and 9,000 support band. Decisive plunge below the immediate support level of 8,950 will reinforce the reversal of the short-term trend. Thus, the index can decline to 8,860 and 8,800 levels in the short term. Traders with a short-term view can remain on the sidelines and consider going short on a slump below 8,950 levels with a fixed stop-loss.

Medium-term trend: The Nifty has been on a medium-term uptrend from the December low of around 7,900. As long as the index trades above the significant support level of 8,500, the medium-term uptrend will remain in place. Strong rally beyond 9,353 can push the index up to 9,500 in the medium term. Significant supports on a fall below 8,500 are at 8,350 and 8,250.

The Sensex touched the key psychological level of 30,000 and retreated in the prior week. This has formed a shooting star candlestick pattern in the weekly chart implying near-term weakness. The daily and weekly indicators display negative divergence, which also depicts weakness and implies that the uptrend is loosing steam. The index is testing a key resistance in the wide range of 29,500 and 30,000. A conclusive break above this zone can push the index higher to 30,500 in the ensuing months.

Having said that, a slump below 29,500 can reinforce bearish momentum and pull the index lower to 29,350 and then to 29,000 in the short term. Further fall below 29,000 can diminish the short-term uptrend and drag the index down to 28,740 and 28,500 thereafter. As long as the index trades above 27,500 which is a key long-term base level, the medium-term uptrend will remain in place. Next key support is placed at 27,000.

Last week, the Bank Nifty moved in a narrow range, testing the key resistance level of 21,500 and fell marginally by 13 points. The index continues to test this key resistance with a slight negative bias. The daily indicators such as relative strength index and moving average convergence divergence show negative divergence, indicating trend reversal. Inability to decisively move beyond 21,500 can create further weakness and pull the index lower to 21,000 and 20,700 levels. Only a strong plunge below 20,700 will mar the short-term uptrend in the index and drag it to 20,500. Key supports below 20,500 are placed at 20,370, 20,150 and 20,000.

Conversely, an emphatic break above 21,500 can take the index northwards to 22,000. Traders with a short-term perspective and high risk appetite can go short if the index fails to move beyond 21,500 with a tight stop-loss. The medium term will remain in place as long as the index trades above 19,000 levels.

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