Index Outlook : Indices on the edge

The bellwether indices, the Nifty and the Sensex, remained choppy last week. They failed to sustain their intra-day gains as selling pressure emerged at higher levels. The fourth quarter earnings results of key blue-chip stocks such as Reliance, Axis Bank, Kotak Mahindra Bank and Ultratech Cement could lend direction to the indices. Moreover, the April month derivative expiry can also keep the indices within a tight range.

Nifty 50 (9,119.4) Amid volatility, the Nifty 50 index dropped 31 points or 0.34 per cent last week, closing below its 21-day moving average line.

This week: Once again, the key immediate resistance in the band between 9,200 and 9,240 proved to be a strong resistance as this zone capped the rally last Tuesday. Subsequently, the index fell, breaching its 21-day moving average. It now tests a support at the level of 9,100.

A bearish move below this level can strengthen the near-term downtrend. It can then slip to test the next support band between 9,000 and 8,950. An emphatic downward break of this zone can result in a short-term trend reversal. The daily relative strength index features in the neutral region, showing signs of weakness. Further, the daily price rate of change indicator hovers in the negative territory, implying selling interest. Their weekly counterparts are charting downwards, indicating weakness.

Strong decline under 8,950 can reinforce the near-term downtrend of the index, leading to continuation of the down move to 8,860 and 8,800.

Traders with a short-term perspective can go short on a strong slump below 9,100 with a fixed stop-loss. Conversely, if the index manages to gather strength and moves beyond the immediate resistance zone between 9,000 and 9,240, it can witness buying interest and trend upwards to 9,286 and 9,353 levels in the short term.

Medium-term trend: There is no major change in the medium-term trend which is up for the index. This uptrend will remain intact as long as the index hovers above the key medium-term support level of 8,500.

Decisive rally beyond 9,353 levels can take the index northwards to 9,500. Strong supports below 8,500 are at the levels of 8,350 and 8,250.

Sensex (29,365.3) Last week, the Sensex was also choppy and closed on a negative note for the second consecutive week, declining 96 points or 0.3 per cent.

The index traded below its 21-day moving average and closed slightly below it, showing weakness. Though the index managed to move above 29,500 intra-day, it failed to close above this level due to selling pressure. The index can continue to test the key resistance in the broad range of 29,500-30,000 in the ensuing week as well.

Failure to move beyond this zone can drag the index down to 29,000 initially. Likewise, the weekly relative strength index and price rate of change indicators charting downwards also display negative divergence indicating a potential trend reversal in the index.

Continuation of the down move can reinforce the bearish momentum and drag the index down to 29,000 in the near term. Strong downward break-out of 29,000 can mar the short-term uptrend in the index and drag it down to 28,740 and 28,500 thereafter. A key long-term support to note is at 27,500 which can lend support for the index and keep the medium-term up-trend intact. Next support is at 27,000. Conversely, if the Sensex moves beyond the 30,000-mark, a rally to 30,500 levels is possible in the medium term.

Bank Nifty (21,551.4) Last week, the Bank Nifty recorded a new high of 21,947 and started to decline with increasing selling interest. The index slipped 135 points or 0.6 per cent in the previous week. It was volatile and has formed a spinning top candlestick pattern, implying indecisiveness.

For the past three weeks, the index has been in a narrow range-bound movement between 21,400 and 21,800. Plunge below the lower boundary of 21,400 can pull the index down to 21,000 and 20,700 levels in the short term.

An emphatic downward break of the base level of 20,700 will alter the short-term up-trend. Next key supports are at 20,370, 20,150 and 20,000. The daily price rate of change indicator has entered the negative terrain implying selling interest.

A weak start below 21,400 will be a cue for traders with a short-term perspective to initiate short positions with a fixed stop-loss at 21,600.

On the upside, a rally beyond 21,800 can take the index higher to 22,000 in the near future. We restate that the medium-term uptrend will remain intact as long as the index trades above 19,000 levels.

Global cues The Dow Jones Industrial Average continues to test its key support level of 20,500 and gained 94 points to close at 20,547 last week. It faces key resistances ahead at 20,700 and 21,000.

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