Technical Analysis

Index Outlook: All eyes on the Fed

Yoganand D | Updated on January 12, 2018 Published on June 10, 2017



The Nifty and the Sensex traded amid volatility, ending on a mixed note

Investors remained cautious ahead of the RBI’s policy review last week and the bellwether indices moved sideways within a narrow range. The RBI maintained status quo and kept the key policy rate unchanged at 6.25 per cent for the fourth time in a row. The monetary policy committee (MPC) lowered its inflation target for FY18, raising hopes of rate cut once again. Markets now seek direction from monsoon, rupee movement and global cues. All eyes are on the much-anticipated US Fed meet this week, with most expectations around a rate hike.

Nifty 50 (9,668.2)

The Nifty 50 index managed to stay above the key support level of 9,600, by recording an intra-week low of 9,608 amid volatility. After testing the key resistance at 9,700, the index recorded a new high of 9,709 last Tuesday. It inched up by 14.7 points or 0.15 per cent last week.

Short-term trend: After a strong break above the key resistance at 9,500 in late May, the Nifty index started to move sideways between 9,600 and 9,700. As long as the index trades above the vital support level of 9,500, the near-term outlook will continue to stay positive. A slip below the lower boundary of 9,600 can test the 21-day moving average poised at 9,544 or even the next key support at 9,500 in the coming weeks. An upward reversal is possible from the 21-day moving average. The index has a significant support in the 9,345-9,400 zone. Strong tumble below 9,345 will mar the short-term uptrend in the index and drag it lower to 9,250, 9,191 and 9,075 levels.

Traders with a high-risk appetite can consider initiating long position as long as the index hovers above 9,500 levels with a stop-loss at 9,470. Strong break above 9,700 can push the index higher to 9,800 in the short term. That said, we restate that inability to move beyond 9,700 levels in the near term can keep the index continuing its sideways movement in the 9,500-9,700 range.

Medium-term trend: There is no major change in this trend; the index continues be trending up since taking support in late December 2016 at around 7,900. We reiterate that there won’t be any big threat to the medium-term uptrend as long as the index trades above 9,000 levels, which is a key psychological level to note. Investors with a medium-term perspective can stay invested with a stop-loss at 8,950. Medium-term supports are at 9,250 and 9,100. Strong continuation of the uptrend can take the index northwards to 10,037 and 10,854 over the medium term with some pause at 9,800 and 9,900 levels.

Sensex (31,262)

The Sensex snapped its four consecutive weekly gains by marginally slipping by 11 points last week. With a narrow range-bound movement, the index has formed a doji candlestick pattern in the weekly chart, implying neutral stance. Though the indicators and oscillators are charting down in the daily chart, the weekly indicators are up and strong. There are no signs of trend reversal in the index.

The near-term outlook will remain bullish as long as the index trades above the immediate key support level of 30,500. The 21-day moving average positioned at 30,845 could also cushion the index, in case a corrective decline is seen. An emphatic break above 31,500 can take the index higher to 32,000 in the short to medium term.

Strong short-term support below 30,500 is pegged at 30,000. Medium-term support for the index is in the 29,000-29,500 range.

Bank Nifty (23,690.9)

The Bank Nifty advanced 154.8 points or 0.7 per cent on Friday. The index closed on a firm note above 23,500 levels. With this rally, the index has gained 315 points or 1.4 per cent over the past week, strengthening both the short as well as medium-term uptrends. Short-term outlook is bullish; the index can extend its uptrend to test resistance at 24,000 with a pause at 23,800. The indicators in the daily chart are charting upwards, backing the uptrend. However, the weekly relative strength index features in the overbought zone, signalling caution.

The previous key hurdle at 23,500, can act a near-term base for the index now. Next key supports are at 23,300 and 23,000. Traders with a high-risk appetite can continue to hold the long positions with a stop-loss at 23,240.

That said, a decisive plunge below the key support level of 23,000 will alter the near-term uptrend and drag the index lower to 22,500 and 22,300. Nevertheless, to mitigate the short-term trend, the index needs decline below 22,500 levels.

Global cues

Last week, the Dow Jones Industrial Average rose 0.3 per cent to close at 21,271.9. The upmove can continue and the index can test next resistance at 21,400 and 21,500 in the short term. Vital supports below 21,000 are pegged at 20,800 and 20,600. However, the Nasdaq tumbled 1.8 per cent on Friday due to a sell-off in tech stocks. For the week, the index fell 97 points or 1.6 per cent to close at 6,207.9. S&P 500 also ended on a negative note.

The Nikkei 225 index is pausing around 20,000. A decline below the immediate support level of 19,800 can bring back selling pressure and pull the index down to 19,600 levels. Resistances are at 20,200 and 20,500.

Published on June 10, 2017
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