Index Outlook: Cracks in the uptrend

Both global and domestic markets trudged sideways in a narrow range as the US Federal Reserve meeting remained in sharp focus last week. The Fed raised its policy rates by 25 basis points as expected and the market now awaits for it to begin shrinking its portfolio of bonds slowly this year. Also, Fed eyes one more interest rate hike in 2017. In the coming week, the markets could take cues from the rupee movement and progress of the monsoon.

Last week, the Nifty 50 started on a negative note and ended in the negative territory, snapping the trend of five consecutive weekly gains. It has fallen by 80 points, marginally closing below the key support level of 9,600.

Short-term trend: The index was very volatile, trading in a narrow range between 9,560 and 9,660. It currently tests the 21-day moving average poised at 9,577 levels. A slip below this level can find support at 9,500. The index can remain choppy in the coming week too. We reiterate that as long as the index hovers above the key support level of 9,500, the near-term outlook will remain bullish. Resumption of the up-move from this base can take the index higher to 9,650 and 9,700 levels in the short term. That said, a sharp plunge below 9,500 will weaken the near-term up-trend and pull the index down to the next key support range between 9,345 and 9,400 in the ensuing weeks.

To alter the short-term up-trend, the index needs to emphatically decline below 9,345 levels. Next supports are at 9,250, 9,191 and 9,075 levels. Traders with a short-term perspective and with a high-risk appetite can consider going long in the ongoing corrective decline as the index stay above 9,500. Stop-loss can be maintained at 9,470. The index can test resistances at 9,650 and 9,700. Conclusive break above 9,700 can take the index northwards to 9,800. But failure to surpass 9,700 can keep the index consolidating sideways in the 9,500-9,700 band.

Medium-term trend: The index continues to be in a medium-term uptrend. The ongoing corrective declines are good and healthy from a medium-term perspective. The weekly indicators are charting downwards, reversing from the overbought territory. Key medium-term supports to watch are at 9,400, 9,250 and 9,100 levels. Investors with a medium-term view can remain invested with a stop-loss at 8,950, but failure to move beyond 9,700 will be cue to taking partial profits off the table. Resumption of the uptrend can push the index higher to 9,800 and 9,900 levels. Further rally can take it to 10,037 and 10,854 over the medium term.

Last week, the Sensex moved sideways above a key support level of 31,000 and fell 205 points or 0.66 per cent. With this fall, the daily indicators are charting down and showing signs of weakness. However, the corrective decline can come to an end either at the current support level of 31,000 or at 30,500. As long as the index trades above the key base level of 30,500, the near-term outlook will continue to be bullish. Conclusive upward break of the immediate resistance at 31,500 can pave way for an upmove to 32,000 in the short to medium term. Vital support to note after 30,500 is at 30,000. The 29,000-28,500 range is the significant medium-term support for the index. Medium-term trend continues to be up as long as the index trades above 28,500 levels.

In line with the broader indices, the Bank Nifty slipped 0.8 per cent or 188 points in the previous week. The index now tests the key support level of 23,500. Strong decline below this level can pull the index down to 23,277 and then to 23,000 in the near term. Having said that, a decisive breach of the immediate resistance level of 23,700 can take the index northwards to 24,000 with a further pause at 23,800 levels. The short-term outlook will remain bullish as long as the index trades above the key base level of 23,000. Traders with a high-risk appetite can hold their long positions with a stop-loss at 23,240. Desist taking fresh long positions if the index plunges sharply below 23,277 levels. Downward break of 23,000 can change the near-term trend downwards and pull the index down to 22,500 and 22,300. To mar the short short-term uptrend, a decisive fall below 22,500 levels is required.

Though the Dow Jones Industrial Average advanced 112 points or 0.5 per cent to end at the week at 21,384, the S&P 500 and Nasdaq have recoded negative weekly closes and are showing signs of weakness. In the short term, the Dow can extend its upmove and test resistances at 21,400 and 21,500. However, a downward reversal from either of the resistances can pull the index down to 21,200 and then to 21,000 levels. Key supports below 21,000 are at 20,800 and 20,600.

The Nikkei 225 index continues to hover at 20,000. Strong fall below the immediate support at 19,800 can strengthen the down move and drag the index lower to 19,600 levels. Resistances to note are placed at 20,200 and 20,500.

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