Index Outlook: Market still on the edge

The market opened on a weak note, largely triggered by a sell-off in pharma stocks. These stocks took a sharp knock after some companies in the sector received observations from the US health regulator.

Both CNX Pharma and BSE S&P Healthcare Indices recorded a 52-week low on Tuesday. But subsequent short covering ahead of derivative expiry for March series and placating statements from the US Federal Reserve Chairwoman, Janet Yellen, lifted the benchmark indices higher. However, the indices remain volatile, ahead of the RBI’s policy meeting on April 5 and upcoming earnings season. The mid and small-cap indices, though, continued to outperform broader indices last week.

Nifty 50 (7,713) Last week, the index was volatile. After falling initially, it bounced back and closed on a marginally negative note, down 3.5 points. After recording an intra-week low at 7,582, the index tested its support at 7,600 and moved up. Currently, it is testing its resistance at 7,730.

The week ahead: We reiterate that the index is now poised at a crucial resistance zone which could decide its next move or direction. The 38.2 per cent Fibonacci retracement level of prior downtrend is at 7,700. The band between 7,700 and 7,730 is a key trend-deciding area. The indicators in the daily chart are trending down.

But a decisive breakthrough of this resistance band can strengthen the momentum. It can reinforce the bullish trend and push the index northwards to 7,800, 7,900 where the 200-day moving average is poised and then to 7,955 in short term.

Hence, traders with a short-term perspective should tread with caution and consider taking long position on a decisive upward break.

On the other hand, a fall below the immediate supports at 7,600 and 7,500 can strengthen the bearishness and drag the index down to 7,400. Such a decline can be corrective as long as the index continues to trade above 7,400. Supports below this level are at 7,300 and 7,250.

Medium-term trend: The intermediate-term downtrend that has been in place since March 2015 peak of 9,119 is still intact. Only a conclusive move beyond 8,000 will alter this downtrend.

A strong rally, which commenced early this March, will continue as long as the index hovers above 7,400. Decisive move beyond 7,775 can push the index up to 8,000 and then to 8,270 in the medium term. Important supports are at 7,250 and 6,970.

Sensex (25,269.6) Snapping the consecutive four week gains, the Sensex ended on a negative note last week. It is down 68 points.

The key resistance ahead at 25,500 limited the upside last week. The index recorded an intra-week low at 24,835 and then marked an intra-day week high at 25,479.

The week ahead: The index is in a short-term up move. Traders with a short-term horizon can consider buying on a decisive close above 25,500. Near-term targets are 26,300 and 27,200. However, failure to breach the resistance will keep the index moving sideways in the wide band between 22,500 and 25,500.

Conversely, a conclusive fall below 25,000 can pull the index lower to 24,500. Supports below 24,500 are at 24,000 and 23,000. To mar the short-term uptrend, the index has to close below 24,000 emphatically.

Bank Nifty (16,174.9) The Bank Nifty extended its up move by gaining 287 points or 1.8 per cent in the previous week. The Bank Nifty has outperformed the bellwether indices.

Following an initial fall, the index managed to stay above the key base level of 15,500. Subsequent rally has taken the index above the resistance level of 16,000. Now, the Bank Nifty tests the next resistance at 16,250.

A positive start in the coming week can accelerate the index to 16,500 and 16,800. Near-term supports are at 16,000 and 15,800. Traders should avoid taking long position on a fall below the second support.

Such a fall can pull the index down to 15,500, and 14,765 which could be a corrective decline. But a fall below 14,765 will mitigate the uptrend and pull the index down to 14,500 and then to 14,000 in the medium term.

Global cues The Dow Jones Industrial Average resumed its uptrend by advancing 227 points or 1.6 per cent last week. However, the indicators and oscillators in the daily chart show signs of weakness. The index has a key resistance ahead at 18,000.

A downward reversal from this hurdle can drag the index down to 17,500 and then to 17,000. Strong breakthrough of 18,000 can take the index higher to 18,351 or even new highs.

The Japanese benchmark index, the Nikkei 225 plunged 5 per cent in the week ago on stronger yen. The index currently trades above a significant support at 16,000. Further fall below this level can drag the index down to 15,000 in the short term. Key resistances are at the levels of 17,000 and 17,500.

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