Technical Analysis

Index Outlook: Is near-term view bullish for Sensex, Nifty 50?

Gurumurthy K BL Research Bureau | Updated on October 09, 2021

The recovery of the benchmark indices last week keeps hopes alive

The rally in the Indian benchmark indices, which paused in the week earlier, resumed last week. The Sensex and Nifty 50 opened on a positive note with a gap-up and managed to sustain higher all through the week barring the fall on Wednesday. Recovery in the Dow Jones Industrial Average last week kept the sentiment positive in the market.

The Reserve Bank of India’s (RBI) monetary policy meeting on Friday turned out largely to be a non-event for the markets. The central bank left the repo rates unchanged at 4 per cent and also retained the growth forecast for the current financial year (FY22) at 9.5 per cent.

For the coming week, the Index of Industrial Production (IIP) and the Consumer Price Index (CPI) inflation numbers on Tuesday and Wholesale Price Index (WPI) inflation on Thursday are the important data releases to be watched.

Nifty 50 (17,895.2)

Nifty opened the week with a wide gap-up and rose well last week to recover the loss made in the week earlier. The index made a high of 17,941.85 on Friday before closing the week up by 2.07 per cent at 17,895.2.

The week ahead: Key near-term supports are at 17,600 and 17,400. As long as the index stays above these supports, the view is bullish to break above 17,950 and rise to 18,300-18,350 in the coming weeks. The 18,300-18,350 region is a good resistance from where pull-back to 18,000-17,900 cannot be ruled out. The bullish outlook will get negated if Nifty breaks below 17,400. In that case the index can dip to 17,250-17,200.

 

Medium-term outlook: Nifty will come under pressure for a correction within its overall uptrend on a break below 17,200. Such a break can drag it to 17,000-16,900 initially. A break below 16,900 can see a deeper correction to 16,600 and even 16,300. The levels of 16,600 and 16,300 are important medium-term supports that are likely to hold. Nifty will come under threat for a trend reversal only on a break below 16,300. Such a break, though less likely at the moment, can drag it to 15,950-15,900 initially and even deeper eventually.

However, we reiterate that as long as Nifty remains above 16,600-16,300, the broader trend will remain up for the index to test 19,600-19,800 over the medium term.

Sensex (60,059.06)

Barring a short-lived dip to 58,952.11 on initial trades, Sensex managed to sustain well above 59,000 all-through last week. The index surged to a high of 60,212.3 on Friday and came off from the close at 60,059.06, up 2.2 per cent for the week.

The week ahead: A cluster of supports are poised between 59,500 and 59,000. While above 59,000, the near-term outlook is bullish to test 61,000. A strong break above 61,000 is needed to boost the momentum and take the index up to 62,000-63,000 levels. Inability to breach 61,000 can keep the Sensex in the range of 59,000-61,000 for some time. 58,000 is a slightly deeper support which can come into play in case the index breaks below 59,000.

Medium-term outlook: The overall trend remains up. Sensex will come under pressure for a sharp correction within this uptrend on a break below 58,000. Such a break can drag it to 56,000-55,000. However, the trend will reverse only if Sensex falls below 55,000. As long as Sensex stays above 55,000 the trend will continue to remain up and the index can target 66,000-67,000 over the medium term.

Nifty Bank (37,775.25)

The Nifty Bank index is struggling to get a strong follow-through rise above 38,000. The index opened the week with a gap-up and rose to a high of 38,105.75 on Wednesday and came off slightly from there to close at 37,775.25 on Friday, up 1.48 per cent for the week. Broadly, the index has been oscillating up and down around 37,000 over the last few weeks. The broader view remains bullish as long as the index stays above 36,500. A strong and sustained break above 38,100 will strengthen the bullish momentum and take the Nifty Bank index up to 39,000-39,500 in the coming weeks. This bullish view will get negated only if the index breaks below 36,500 decisively. In such a scenario, a fresh fall to 36,000 initially, then 34,000 eventually, is possible. It will also indicate a trend reversal.

The trailing stop-loss at 37,650 has been hit in our earlier long position taken at 37,200. Wait for dips to take fresh long positions 37,200 again. Accumulate longs at 36,800. Keep the stop-loss at 35,900 for the target of 39,200. Trail the stop-loss up to 37,700 as soon as the index moves up to 37,950.

Global cues

On the global front, the Dow Jones Industrial Average (34,746.25) recovered last week after having fallen over a per cent in the week earlier. The index was up 1.22 per cent last week. Broadly, the Dow has been stuck between 33,500 and 35,000 over the last three weeks. This sideways consolidation can continue for some more time. The Dow will need a decisive weekly close above 35,000 to ease the downside pressure and rise to 36,000 or higher. As long as it trades below 35,000 the danger of breaking below 33,500 and seeing a fall to 33,000-32,000 will remain. Among the Asian indices, Japan’s Nikkei 225 (28,048.94) continued to underperform. After tumbling 4.9 per cent in the week earlier, the index extended the fall by another 2.5 per cent last week.

Published on October 09, 2021

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