Technical Analysis

Index Outlook: RBI’s policy to lend direction

Yoganand D | Updated on January 20, 2018 Published on June 04, 2016


Index outlook eps

Both indices advanced marginally last week. Key events ahead will decide the next trend for the indices

Indian equity markets extended gains for the second consecutive week, thanks to an impressive GDP growth, better than expected corporate earnings and the IMD retaining its above-normal monsoon forecast.

What caught markets by storm was the sharp growth in GDP for the fourth quarter of 2015-16 that reported a 7.9 per cent growth, taking the overall GDP growth for the full fiscal 2016 to a five-year high of 7.6 per cent.

Firing on all cylinders, the latest macro data on GDP growth and core infrastructure performance bolstered India’s position as the world’s largest growing economy, as China continued to lag. The market rally was led by buying in metals and auto, driven by optimism that India’s economic growth will accelerate going ahead. FPIs continued to remain net buyer in the domestic market.

On the global front, the ECB kept the key interest rates unchanged. While the Organization of the Petroleum Exporting Countries (OPEC) remained indecisive on output targets, Saudi Arabia’s pledge not to flood the market with more oil boosted sentiments.

The WTI crude fell 1.4 per cent to close the week at $48.6 per barrel. Markets will keenly watch for cues from US Federal Reserve Chair Janet Yellen’s speech on Monday about interest rate policy. The RBI’s policy meeting on Tuesday will also lend direction to the markets. Further, the timely start of the monsoon will boost the positive sentiment. IIP numbers that are due on Friday will also be crucial for markets.

Nifty 50 (8,220.8)

The Nifty index advanced 0.79 per cent with good volumes amid choppiness last week.

The week ahead: Following a slow start, the index surged on Thursday, taking the index above the 8,200-mark. Breakthrough of the key resistance level of 8,000 can act as a significant support level in the near future. Immediate support to note, though, is in the band between 8,050 and 8,100. As the week is filled with key events, the index can experience volatile movement. In such a scenario, the key immediate support band and the next one at 8,000 is likely to provide cushion for the index. Continuation of the uptrend can take the index higher to 8,300.

An emphatic breakthrough of this level is needed to accelerate the uptrend to 8,400 and then to 8,500 in the short term. Key supports below 8,000 are pegged at 7,900 and 7,800 levels.

We reiterate that traders with a short-term perspective can make use of the corrective decline to initiate long position while maintaining a stop-loss at 8,000.

Medium-term trend: Since bouncing back strongly in February, the index has been on a medium-term uptrend.

A conclusive breach of the moving average compression, a week before, is a bullish sign. A strong rally beyond 8,300 is needed to alter the intermediate-term downtrend and take the index northwards to the 8,500 and 8,600 band in the ensuing weeks.

Nevertheless, a decisive fall below 8,000 can drag the index down to 7,800 or even to 7,700 in the medium term. The next trend-deciding support is in the band between 7,550 and 7,600. Investors with a medium-term horizon can stay invested with a stop-loss at 7,700.

Sensex (26,843)

The Sensex advanced 189 points or 0.71 per cent last week, keeping the bullish momentum intact. The index continues to hover well above its 50 and 200-day moving averages.

The week ahead: The index now tests a key resistance at 27,000. Conclusive rally above this level can take the index higher to 27,500 in the coming weeks. But, failure to surpass this level can drag the index down to the key immediate supports at 26,500 and 26,300.

As long as the index trades above 26,000 levels, the short-term uptrend will remain intact. Next supports are at 25,800 and 25,500. Significant medium-term support is fixed at 24,500. Strong rally beyond 27,500 will alter the intermediate-term downtrend and take the index higher to 28,000 in the medium term.

Bank Nifty (17,680.8)

Extending the uptrend, the index climbed 169 points or about 1 per cent last week. But the index is experiencing selling pressure at higher levels.

The indicators and oscillators in the daily chart show signs of weakness. Therefore, traders with a short-term perspective should tread with caution ahead of the RBI’s meet which can provide further direction. A strong rally can take the index higher to 18,000 in the short term. Next resistance is at 18,300.

However, a slump below the immediate support at 17,400 can witness selling pressure and drag the index down to 17,250 and 17,000. Subsequent supports are placed at 16,700 and 16,500.

Global cues

The Dow Jones Industrial Average was choppy and declined marginally by 0.4 per cent to close at 17,807.

An emphatic move beyond the immediate resistance level of 18,000 can push the index higher to 18,300 or a new high in the upcoming weeks. Supports are placed at 17,500, 17,200 and 17,000.

Published on June 04, 2016
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