Index Outlook. Index outlook: It's an eventful week, stay alert

Both the Nifty and Sensex continued their rally last week, but witnessed volatility at higher levels. The mid and small-cap indices also ended the week on a mixed note, raising concerns. The US indices surged to record highs on strong earnings and continue to hover in the overbought territory. The week ahead is action packed, starting with updates from Fed meeting, Budget 2018-19, January auto sales data and ending with January US jobs data. The minutes of last month’s Fed meeting indicate disagreement among Fed officials regarding how many times the Fed should increase its benchmark interest rate in 2018, which is still low at 1.5 per cent. With the biggest overhaul to the tax code in three decades, it is broadly believed that the economy can grow faster now. This is the last meeting for Fed Chair Janet Yellen, so no policy changes are expected.

On the domestic front, Budget 2018-19, will be the Centre’s last full Budget. The earnings announcement of corporates will also weigh on markets. Investors need to be cautious. Any negative cue from global or domestic events could set off a possible short-term correction in the benchmark indices that are hovering at near-ecord highs.

Nifty 50 (11,069.6)

The Nifty 50 index accelerated its upmove by gaining 174.9 points or 1.6 per cent last week and has managed to close above the key level of 11,000-mark.

Short-term trend: The short-term trend continues to be up for the index since taking support at December low at 10,033. After a strong rally in recent times, the index is currently poised near a key resistance level of 11,100.

An emphatic break above this level can push the index northwards to 11,200 and then to 11,300 in the short to medium-term. However, inability to surpass the immediate hurdle can lead to a corrective decline which can drag the index down to 10,900, 10,750 and 10,650 in the same time period.

Both the daily and weekly relative strength indices hover in the bullish zone, backing the short-term uptrend. Likewise, the daily as well as weekly price rate of change indicators feature in the positive territory implying continued buying interest.

There is an increase in weekly volumes. The short-term uptrend will be under threat only if the index slumps below the significant base zone between 10,450 and 10,500. The weekly moving average convergence divergence indicator continues to display negative divergence, which is a potential trend reversal signal. The mid- and small-cap indices continue to underperform the bellwether indices.

On the downside, an emphatic decline below the significant medium-term support in the 10,450 and 10,500 bands can mar the short-term uptrend. In such a scenario, the index can fall to 10,350 and 10,250. Subsequent key support is placed in the 10,000 and 10,100 zone. Investors with a short-term perspective can stay invested with a trailing stop-loss at 10,650 levels.

Medium-term trend: The recent rally keeps the medium-term uptrend intact. Continuation of the uptrend can push the index higher to 11,200 initially. Further rally above the level will pave way for an upmove to 11,500 over the medium term with a minor pause at 11,300. However, lack of fresh bullish momentum can halt the current rally. In such a scenario, the index can decline to test the significant base zone between 10,450 and 10,500. Next medium-term supports are placed at 10,250 and 10,000. A tumble below the key support level of 10,000 the medium-term uptrend will be under threat and the index can slump to 9,700 levels in the long term.

Nifty Bank (27,445.6)

Last week, the Bank Nifty extended its uptrend by gaining 536 points or 2 per cent, breaching a key resistance at 27,000. Now, the index is testing its next barrier at 27,500. A break above this level can push the index upwards to 28,000 in the ensuing weeks. Nevertheless, any corrective decline can pull the index down; traders can consider taking profits off the table at higher levels. The immediate supports at 27,000 and 26,500 can provide cushion for a corrective decline. Next significant support is pegged at 26,200 and 26,000. The short-term outlook continues to be bullish for the index. Traders with a short-term perspective should continue to tread with caution and hold the long positions with the stop-loss at 26,950. Conversely, a decisive plunge below the key support level of 26,000 will mitigate the short-term uptrend and drag the index down to the next support level of 25,700 and 25,500.

Sensex (36,050.4)

The Sensex continued its uptrend by gaining 538 points or 1.5 per cent in the previous week. With this rally, the index closed on a positive note for the eighth consecutive week. It currently tests resistance at at 36,000. Strong rally above this barrier is required to further strengthen the uptrend. Such a rally can take the index higher to 37,000 in the short to medium term.

That said, investors need to tread with caution as the indicators in the daily chart feature in the overbought levels signifying a near-term corrective decline. Such a corrective decline can find supports at 35,500 and 35,000 in the short term. Next key bases are at 34,500 and 34,000. A conclusive fall below the second base level will alter the uptrend and pull the index down to 33,500 over the medium term.

Global cues

The Dow Jones Industrial Average zoomed 544 points or 2 per cent last week to close at a record high of 26,616. We reiterate that the daily and weekly indicators continue to feature in the overbought territory, the probability of a corrective decline can’t be ruled out at this juncture. Key supports are at 26,500 and 26,200. Resistances are at 26,700 and 26,800 levels.

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