Index Outlook: Nifty 50, Sensex signal trend reversal

The Indian benchmark indices, the Sensex and Nifty 50 are gaining momentum. The indices have risen for the third consecutive week. Sensex and Nifty are up 5 per cent over the last three weeks. On the charts, there is a clear channel/trend breakout visible on both the Nifty and Nifty Bank indices. This strengthens the bullish case. There are resistances coming up. But if this breakout sustains, Sensex and Nifty can surpass the upcoming hurdles and move further higher in the coming weeks. Such a rise will also be very bullish from a long-term perspective. It will keep the doors open for the Sensex and Nifty to make new highs going forward this year.

Among the sectors, the BSE IT index, down 1.13 per cent, was beaten down the most. The BSE Capital Goods index was almost flat. All other indices closed in green last week. The BSE Realty index surged the most. It was up 5.25 per cent. This was followed by the BSE Auto index, up 3.47 per cent.

FPIs buy

The Foreign Portfolio Investors (FPIs) have been buying the Indian equities consecutively over the last three weeks. The FPIs bought $612 million in the equity segment last week. The month of April has seen a net inflow of $1.067 billion so far. The recent inflows into the Indian equities indicate that the FPIs have bought the lows. This is a positive signal. It is bullish for the Sensex and Nifty from a long-term perspective.

Nifty (17,828)

As expected Nifty sustained above 17,500 and rose to test 17,850 in line with our expectation. A high of 17,842.15 was made before closing the week at 17,828, up 1.3 per cent.

The week ahead: The outlook is bullish. The break above 17,600 is a positive. Strong support will now be at 17,600 and then at 17,530. Immediate resistance is at 17,875. A break above it can take the Nifty up to 18,000 initially. A rise past 18,000 can see an extended upmove to 18,100-18,200.

This 18,100-18,200 is a crucial resistance which has to be broken to boost the bullish momentum and pave way for more rise.

The short-term outlook will turn negative only if the Nifty breaks below 17,530. In that case the index call fall back to 17,400 and 17,200 again.

Graph Source: MetaStock

Medium-term outlook: The medium-term bullish outlook is gathering strength. There is a clear channel breakout visible on the charts. This gives an early sign that the downtrend that has been in place since December last year could have ended.

Crucial level to watch now is 18,200. A decisive break above it will confirm the trend reversal. Such a break will take the Nifty up to 19,000 initially. It will also bring back our earlier bullish target of 20,000-20,500 into the picture again.

To negate the rally to 19,000-20,000, a strong break below 17,000 will be needed. That looks less probable at the moment.

Sensex (60,431)

The rise to 60,450 has happened as expected. Sensex made a high of 60,486.91 and has come-off from there to close at 60,431, up 1 per cent for the week.

The week ahead: The near-term outlook is bullish. Support is at 60,300. Immediate resistance is at 60,550. A break above 60,550 can take the Sensex up to 61,300-61,400 in a week or two.

Support is at 59,500-59,450 and then at 59,000. The short-term outlook will turn negative only if Sensex breaks below 59,000. In that case, 58,500-58,000 can be revisited on the downside.

Graph Source: MetaStock

Medium-term outlook: Unlike Nifty, Sensex is yet to see a decisive break out of the downtrend that has been in place since December last year. Also, as mentioned last week 61,000-61,300 region is a crucial resistance to watch. A strong break above 61,300 will only confirm the trend reversal and strengthen the bullish case. In that case, a rally to 64,000 and 66,000 over the long term will come into the picture.

The bias is positive, so we expect Sensex to breach 61,300 if not immediately but eventually in the coming weeks.

Nifty Bank (42,132.55)

The break above 41,740 and a subsequent rise past 42,000, both has happened last week. Nifty Bank index has closed on a strong note at 42,132.55, up 2.66 per cent for the week. The index has surged about 7 per cent over the last three weeks. The close above 42,000 is a big positive for the index.

Graph Source: MetaStock

The outlook is bullish. There is room for the index to move further up to 42,900-43,000 in the coming days. Thereafter a corrective fall to 42,000 or 41,700 is possible. However, the level of 41,700 is a strong support. A fall below it is less likely.

As such, we expect the Nifty Bank index to sustain above 41,700 and breach 43,000 if not immediately but eventually in the coming weeks. Such a break will then take the Nifty Bank index up to 44,000 and 45,000 in the coming weeks. That will also keep the long-term bullish outlook intact to see 48,000 and higher levels.

Crucial levels

18,000 - 18,200 on the Nifty

61,000 – 61,300 on the Sensex

42,900 – 43,000 on the Nifty Bank

Dow Jones (33,886.47)

The support around 33,200 has held very well and the rise to 34,000 happened as expected last week. The Dow Jones Industrial Average made a high of 34,082.94 and has come-off from there. It has closed the week at 33,886.47, up 1.2 per cent.

Graph Source: MetaStock

The Dow Jones is now at a crucial point. Immediate resistance is at 34,000 which is holding as of now. A strong break above it can take the index up to 34,700 – the next important resistance, in a week or two. The Dow Jones will need a decisive rise past 34,700 to gain bullish momentum. In that case, a rise to 35,700 can be seen in the coming weeks.

Support is at 33,500-33,400. A fall below it can take the index down to 33,000. But the downside is likely to be limited. Also, the moving average indicators on the daily chart gives a strong bullish signal. So, the chances are high for the Dow to breach 34,700 if not immediately but eventually and rise to 35,700.

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