Technical Analysis

Index Outlook: How much steam is left in Sensex and Nifty 50?

Gurumurthy K BL Research Bureau | Updated on October 16, 2021

The indices ended the sideways consolidation last week with a strong rally

The Indian benchmark indices witnessed a strong rise last week. Both the Sensex and Nifty 50 surged over 2 per cent each. The strong rally has ended the sideways consolidation that was in place over the last few weeks. It also keeps the broader uptrend intact and has opened doors for a further rise from here.

On the data front, India’s Consumer Price Index (CPI) inflation eased in the month of September. The CPI inflation fell to 4.5 per cent (year-on-year) in September from 5.3 per cent (y-o-y) in August. For the coming week there is no major data scheduled for release.

Nifty 50 (18,338.55)

The Nifty 50 saw a strong break above 17,950 last week as expected. It then rose to test 18,350 in line with our expectation. The index has closed at 18,338.55, up 2.48 per cent for the week. The recent rally has broken the 17,250-17,950 range on the upside. This keeps the overall uptrend intact and will pave the way for a further rise from here in the coming weeks.

The week ahead: The short-term outlook is bullish. Immediate support is at 18,200. The chances are high for the Nifty to sustain above 18,200 itself this week. A rise to 18,550-18,600 or 18,700 is possible as long as the index stays above 18,200. A strong break above 18,700 will then open doors to test the psychological resistance level of 19,000 thereafter.

In case the Nifty breaks below 18,200, it can dip to test the next important support levels of 17,950-17,900 or 17,800. But such a fall is less likely.

Medium-term outlook: The medium-term trend remains up. Nifty will come under pressure for a corrective fall within this uptrend only if it breaks below 17,800. Such a break can drag it to 17,300-17,200 or even 17,000. The outlook will turn bearish only if Nifty breaks decisively below 17,000. Such a break will indicate a reversal and can drag the index down to 16,300-16,000 and even 15,500 over the medium term. However, from a long-term perspective, such a fall will be a good buying opportunity to go long in Nifty in the 16,000-15,500 region.

Sensex (61,305.95)

The Sensex sustained well above 59,000 last week and rose to 61,000 in line with our expectations. The index indeed broke above 61,000 and touched a high of 61,353.25 on Thursday before closing the week at 61,305.95. It is up 2.08 per cent for the week.

The week ahead: Immediate support for Sensex is at 61,000. It is more likely to sustain above 61,000 and see a rise to 62,000-62,500 this week. The level of 62,500 is a key near-term resistance which will have to be broken to see a further rise to 63,800-64,000 in the short-term.

In case the Sensex declines below 61,000 this week, it can fall to 59,000. Strong support is seen in the broad 59,000-58,000 region.

Medium-term outlook: The Sensex will come under pressure for a corrective fall only on a break below 58,000. Such a break can drag it to 57,000-56,500 initially and then to 55,000 eventually. We reiterate that 55,000 is a strong support which is likely to hold and keep the broader uptrend intact. The trend will reverse only if Sensex breaks below 55,000. In that case the index can fall to 54,000 and even 52,000. But such a deep fall look unlikely at the moment.

Nifty Bank (39,340.9)

After struggling to see a sustained break above 38,000 over the last few weeks, the Nifty Bank index surpassed this hurdle decisively as expected last week. It surged to a high of 39,375.05 and closed on a strong note for the week at 39,340.9. The index is up 4.14 per cent for the week. There is a strong resistance coming up in the 40,100-40,150 region. The chances are high for the index to reverse lower from there to 39,000 and even 38,000. The region between 38,200 and 38,000 is a strong support which is likely to hold for now and produce a bounce-back towards 40,000 again. Overall, we can expect the Nifty Bank index to trade in a range of 38,000-40,150 for a couple of weeks. A strong weekly close above 40,150 will be needed to strengthen the momentum and take the index further higher.

Traders with a high risk appetite can go long on dips at 38,250 and accumulate at 38,050. Stop-loss can be placed at 36,900. Trail the stop-loss up to 38,600 as soon as the index moves up to 39,100. Move the stop-loss further up to 39,100 as soon as the index moves up to 39,600. Book profits at 40,100

Global cues

The Dow Jones Industrial Average (35,294.76) fell initially but then managed to recover sharply towards the end of the week. The index made a low of 34,116.52 on Wednesday and recovered well thereafter to close above the key level of 35,000. While this break above 35,000 sustains, the outlook is bullish to see a fresh rise to 36,000-36,250 in the coming weeks. The rally in the Dow will keep the overall sentiment positive and can aid the Sensex and Nifty 50 also to move up further from here.

Published on October 16, 2021

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