Index Outlook | Key supports could cushion Sensex, Nifty 50

Both the Sensex and the Nifty 50 witnessed selling interest in the initial part of last week before staging a minor recovery on Friday.

The rise in US Treasury yields could keep pressure on the global equity markets, but a pause or slide in yields can bring back cheer in equity investors.

Thereafter, the ensuing week could remain volatile. Hence, traders should tread with caution in the coming derivatives expiry week.

Nifty 50 (14,744)

In the past week, the Nifty 50 moved downwards, breaching a support at 14,750. But the subsequent support at around 14,500 cushioned the index on Friday, and it gained 1.28 per cent, trimming the weekly loss to 1.9 per cent. The bounce from a key support level of 14,500 on Friday resulted in the formation of a piercing line candlestick pattern on the daily chart, which is a short-term bullish reversal candlestick pattern.

The week ahead: Since early February this year, the Nifty 50 has been in a sideways consolidation phase in a wide band between 14,500 and 15,320.

Within this range, the index faces a key resistance ahead at 15,000, which is also a psychological level. A strong rally above this hurdle can take the index higher to 15,200 and then to the upper boundary of the sideways range in the ensuing weeks.

Inability to move beyond 15,000 or 15,200 can keep the index featuring in the sideways range for a while. A plunge below the lower boundary at 14,500 can bring back selling interest and drag the index lower to 14,280 and then to 14,000 over the short term.

A further decline below the crucial base level of 14,000 can strengthen the bearish momentum and pull the index down to the next key support in the 13,500-13,600 band.

Medium-term outlook: The intermediate- and medium-term trends continue to be up for the index. Since the September 2020 low of 10,790, it has been on a medium-term uptrend.

A fall below the key medium-term base level of 14,500 can pull the index down to 14,000.

A further decline below 14,000 can pull the index lower to 13,600 and then to 13,330 levels over the short term.

We reiterate that as long as the index trades above the vital base level of 12,750, the medium-term uptrend will remain intact. A decisive plunge below this base will weaken the uptrend and pull the index down to the subsequent support levels of 12,400, 12,260 and 12,000 over the medium term. The resistances above 15,300 are at 15,500 and 15,600.

Sensex (49,858.24)

The Sensex gained 1.3 per cent on Friday, reducing the weekly loss to 1.8 per cent. The bounce-back on Friday was from a key base level of 49,000, and the index has formed a piercing line candlestick pattern, indicating that a short-term trend reversal is on the cards. This means the ongoing correction could have come to a temporary halt.

That said, the index needs to surpass the key resistances ahead at 50,000 and 51,000 to mitigate the on-going correction which is in the form of a sideways movement.

A strong rally above 51,000 can pave the way for an upmove to 51,400 and then to 52,000. A conclusive breakthrough of 52,000 can take the index northwards to 53,000 and then to 54,000 over the medium term.

On the downside, the key support at 49,000 can provide base in the near term. But a decisive fall below this base can drag the Sensex down to 48,600 initially and then to 48,000.

We restate that an emphatic fall below 48,000 will mar the short-term uptrend that began from the base of 46,000 in January this year, and pull the index lower to the subsequent support level of 47,000 and 46,000 over the short term.

The uptrend that started from the September 2020 low of 36,495 will remain intact as long as the index trades above the medium-term support level of 45,000.

The supports thereafter are placed at 44,520 and 44,000. Investors with a long-term perspective can stay invested with a stop-loss at 40,000.

Nifty Bank (34,161.6)

The Nifty Bank tumbled 3.76 per cent last week on the back of selling interest. The index now tests a support at 34,000.

An upward-reversal from this base and a rally above the immediate resistance at 35,000 are needed to mitigate the corrective downmove and take the index northwards to 36,000 and then to 36,500 in the short term.

That said, if the index declines below 34,000, it will reinforce the ongoing downmove and drag it lower to 33,500 and then to 33,000 levels.

A decisive slump below 33,000 will bring back selling pressure and pull the index down to 32,000 over the short term.

Traders should tread with caution in the coming week as well.

The medium-term uptrend that has been in place from the September 2020 low of 20,400 will stay intact as long as the index trades above 29,000 levels. The supports below 29,000 are at 28,500 and 28,000.

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