Technical Analysis

Index outlook: Indices should break barrier

Yoganand D | Updated on January 17, 2018 Published on July 02, 2016

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The bellwethers rose, thanks to local and global factors. The bullish momentum may sustain



The domestic indices Nifty and Sensex advanced close to 3 per cent in the previous week, wiping the earlier decline on due to Brexit.

The strong rally to a 10-month high was driven by a few factors. Anticipation of a good monsoon, the Cabinet’s nod for the Seventh Pay Commission recommendations, and also short-covering by participants in the derivatives segment helped. The global market rally aided the domestic benchmark indices too.

The market kicked off the July series on a positive note with both the indices scaling to this year’s new high on Friday.

Foreign portfolio investors (FPIs) remained net buyers and the domestic institutions also turned buyers last week.

Globally, Brexit could remain a key event for the market going forward. Economists anticipate a slight impact on the US growth, but slower growth in Europe and a recession in the UK.

The domestic market though will focus on the upcoming earnings season that is expected to start mid-July. The progress of the monsoon will also be keenly watched.

The Nifty 50 added 239 points, almost 3 per cent and the Sensex advanced 747 points, 2.8 per cent in the previous week.

Nifty 50 (8,328.3)

Following an initial setback on Monday, the index saw a strong up-move for the rest of the sessions last week. Surpassing the 21-day moving average, the index closed above a key resistance level at 8,300.

The week ahead: The Nifty surged, breaching resistances at 8,200 and 8,250 levels. It closed marginally above the vital resistance of 8,300.

An emphatic rally above this level is required to sustain the bullish momentum. However, profit taking or selling pressure in the coming week after a sharp rally cannot be ruled out. Such selling pressure can pull the index down to 8,250 or 8,200 levels.

Traders with a short-term perspective can go long on such corrective declines with a stop-loss at 8,180 levels.

Strong further rally beyond 8,300 can strengthen the bullish momentum and push the index upwards to 8,400 and then to 8,500. Key supports below 8,200 are placed at 8,000 and 7,900.

Medium-term trend: The index is in a medium-term uptrend and this got strengthened in the prior week after taking support from the uptrend line.

The medium-term targets are 8,500 and 8,600. Conversely, if the index sees a decisive decline below the key support at 8,000, it can bring back selling interest and pull the index down to 7,800 and 7,700 in the medium term.

Investors with a medium-term outlook can remain invested as long as the index trades above 7,700. The band between 7,550 and 7,600 is the next trend-deciding level for the index.

A conclusive move beyond the 8,300 level is required to change the intermediate-term downtrend that has been on since January 2015 in the index. The index seems poised for such an up-move.

Sensex (27,144.9)

Last week, the index saw strong gains and rose above the 21-day moving average and key resistance level of 27,000. The medium-term uptrend is intact.

The week ahead: The index now tests a key resistance at 27,000.

Crossing this level can see the index encounter resistance at 27,500 which needs to be conclusively breached to alter the intermediate-term downtrend and take the index northwards to 28,000 in the short to medium term.

But failure to decisively move beyond 27,000 can pull the index down to the support levels of 26,750, 26,500 and 26,250. Traders with a short-term view can make use of dips to buy with a stop-loss at 26,650. Key supports below 26,250 are at 26,000 and 25,800.

Bank Nifty (17,985.6)

The Bank Nifty surged 559 points or 3.2 per cent last week. But the index has met with a significant resistance at 18,000 and is testing it. Any selling pressure and profit taking can pull the index down to 17,830 and 17,600 in the near term.

Key supports below 17,600 are at 17,500 and 17,200. On the other hand, strong break through of 18,000 can take the index higher to 18,300 and then to 18,500.

Traders with a short-term perspective should tread with caution and can initiate fresh long positions beyond 18,000 levels.

Global cues

The Dow Jones Industrial Average gained 548 points or 3.2 per cent to close at 17,949 in the prior week. It faces a key resistance at the 18,000-mark.

A decisive breakthrough can push the index further higher to 18,300 or new highs in the short term. Significant supports are placed at 17,800, 17,600 and 17,200.

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Published on July 02, 2016
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