Index Outlook: Market on a strong footing

Positive global cues, strong FPI (foreign portfolio investors) inflows, and short-covering pushed the broader benchmark indices — the Nifty and the Sensex higher to their three-month high last week. The rally was led by banking stocks. Many events are lined-up in the coming week namely the Budget 2017 and the announcement of Q3 results by some key corporates, among others. Globally, the announcement of US home sales, outcome of Bank of Japan meeting, FOMC (Federal Open Market Committee) meeting scheduled on January 31-February 1 and BoE meeting, will be crucial for the markets.

The Nifty 50 index surged 291 points or 3.5 per cent accompanied by good volumes in the previous week.

This week: After a short halt at 8,400, the Nifty 50 index resumed its uptrend by decisively breaching this resistance level last week. The short-term uptrend that has been in place since late December is gaining strength. The index now trades well above its 50 and 200-day moving averages.

The daily relative strength index has re-entered the bullish zone from the neutral region and the weekly RSI is on the brink of entering the bullish zone from the neutral region. Both the daily and weekly price rate of change indicators feature in the positive territory, implying buying interest. Volume has been on the rise over the past week.

The index has emphatically breached its key immediate resistances at 8,400 and 8,500 levels. It touched our short-term price target of 8,600 in the prior week. Now, the index is slightly short of touching the key medium-term resistance level at 8,700 levels.

With sharp rally over the past one month, the index is reaching the overbought territory and heading to a key medium-term resistance zone. Profit-booking could emerge beyond 8,700 levels.

Traders with a short-term perspective should tread with caution around this level, with a revised stop-loss at 8,460. A reversal from the aforementioned resistance level can take the index to its immediate support level of 8,600 and to 8,500 levels in the short term. Further slump below 8,500 can target 8,300 levels. Key resistance beyond 8,700 is at 8,800.

Medium-term trend: The index has altered the medium-term trend up with the conclusive breakthrough of 8,500 levels. After a pause at around 8,700, the index can trend northwards to 8,900 and 8,970 levels in the medium term. This uptrend will be in place as long as the index trades above the significant support around 8,300. Important support at 8,200 and 8,000 will come into play on a strong plunge below 8,300 levels. Next key supports are placed at 7,900 and 7,800 levels.

The Sensex conclusively breached the key resistance at 27,500 last week. It hovers well above its 50 and 200-day moving averages. The index faces a key resistance ahead at 28,000. Strong breakthrough of this level is needed to strengthen the uptrend and take the index higher to 28,270 and then to 28,500.

Key supports to note are placed at 27,500, 27,300 and 27,000 levels. An emphatic slump below the key support level of 27,000 can pull the index down to 26,700 and 26,500.

Last week, the Bank Nifty zoomed 887 points or 4.7 per cent emphatically breaking the key resistance level of 19,000. Moreover the index has conclusively closed above the next barrier at 19,500. The short-term trend is up and getting stronger. But a decisive fall below 19,500 can bring back selling pressure. Traders with a short-term and high-risk appetite can hold the long positions with a stop-loss at 19,300. The index can test resistance at 20,000 in the near future. A strong breakthrough of 20,000 can strengthen the uptrend further and push the index higher to 20,250 and then to 20,500 in the medium term. On the downside, a fall below 19,300 can pull the index down to 19,000 and then to 18,700.

The Dow Jones Industrial Average took support at around 19,800 and surged 266 points or 1.3 per cent to close at 20,093.7 last week. The index has breached its immediate resistance at 20,000. However, the weekly indicator is showing negative divergence and implies that trend reversal is on the cards. Immediate resistance is at 20,200.

Strong decline below 20,000 can bring back selling interest and pull the index down to 19,800 and then to 19,500 in the short term. The Nikkei 225 index surged 1.7 per cent, breaking through the immediate resistance at 19,130. However, it now faces a key hurdle at 19,500.

0Strong breakthrough is required to take the index higher to 19,700 and 20,000 levels in the short term. Supports to note are at 19,130 and 19,000.

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