Index Outlook: Sensex, Nifty 50 could be gearing up for a fresh rally

Sensex and Nifty 50 have seen a good bounce last week. The crucial supports on both the Sensex and Nifty 50 have held very well in line with our expectation. Indeed the supports had held well even after the high volatility seen on the Budget day last week. Sensex and Nifty were up 2.55 and 1.42 per cent, respectively.

The price action last week indicates good buying interest on the benchmark indices on lower levels. It also keeps our overall bullish view intact. However, it is important to see if the Sensex and Nifty are going to get strong follow-through rise from here or not. Only in that case we can look for a strong and fresh rally from here. Else, the chances for the Sensex and Nifty to run into a sideways consolidation for some time cannot be ruled out.

Sectors mixed

The performance of the sectoral indices was mixed as some closed in green and some in red. The BSE Consumer Durables index rose the most last week and was up 4.1 per cent. The BSE Oil & Gas and the BSE Power indices were beaten down the most. The indices fell 9.5 and 10.5 per cent respectively.

FPI sell-off

The Foreign Portfolio Investors (FPIs) had sold heavily the equities last week. The Indian equity segment has seen a net outflow of $2.15 billion last week.  The month of January had seen an outflow of $3.52 billion and February has also begun on a negative note. So the FPI action in the coming weeks will need a close watch. If they continue to sell, then the Sensex and Nifty can find it difficult to rise sharply from here.

Nifty 50 (17,854.05)

As expected, Nifty has risen back well after testing the 17,400-17,300 support zone. The index made a low of 17,353.40 on the Budget Day and then had seen a strong bounce from there. Nifty has closed the week at 17,854.05, up 1.42 per cent.

The week ahead: The bounce from the 17,400-17,300 support zone witnessed last week is a positive. However, cluster of resistances are poised in the broad 17,950-18,200 region. Nifty will have to surpass 18,200 decisively to gain bullish momentum. Only in that case, the index can see an extended rise to 18,500-18,700 in a week or two. That will also keep the doors open for the Nifty to revisit 19,000 levels eventually.

But if Nifty fails to breach 18,200, a fall back to 17,400-17,300 cannot be ruled out again. In that case, Nifty can run into a sideways range of 17,300-18,200 for a few weeks.

Broadly, the bias is positive. So we expect Nifty to break 18,200 and rise to 18,500-18,700 initially and then 19,000 eventually. But whether this rise is going to happen from here itself or after some sideways consolidation between 17,300 and 18,200 is not very clear. We will have to wait and watch.

Graph Source: MetaStock

Medium-term view: Nifty sustaining above 17,300 keeps the broader uptrend intact. The bounce seen last week has reduced the danger of the fall to 16,850 cautioned last week. As long as the Nifty stays above 17,300, the overall outlook is bullish. We retain our view of seeing 20,000-20,500 on the upside in the coming months. A strong break above 18,200 will pave way for the same.

Nifty will come under pressure for a fall to 17,000-16,850 only if it breaks below 17,300. That looks less likely at the moment.

Sensex (60,841.88)

Sensex has risen back sharply from the low of 58,699.20 last week. The index has closed on a strong note at 60,841.88, up 2.55 per cent. Indeed, Sensex looks much convincingly placed than the Nifty to rise more from here. So, the chances for the Nifty to break its near-term resistances are very high if the Sensex retains its momentum.

The week ahead: Resistance is in the 61,200-61,300 region. But the price action on the daily chart indicates strength. This leaves the chances high for the Sensex to breach 61,300 and rise to 63,000-63,300 in the short term.

If Sensex fails to break above 61,300, it can fall back to 60,000 and lower levels. In that case, Sensex can oscillate in a wide range of 58,000-61,300 for some time.

The region between 58,500 and 58,000 will continue to act as a strong support and limit the downside. As long as the Sensex trades above this support, the broader outlook will remain bullish.

Graph Source: MetaStock

Medium-term view: The big picture is bullish; 58,000-57,500 will be the strong support zone for the Sensex. As long as the index sustains above this support, the long-term picture will remain positive. As such, we retain our bullish view of the Sensex targeting 65,500-66,000 in the coming months.

Resistance to watch

17,950-18,200 on the Nifty

61,200-61,300 on the Sensex

42,200-42,800 on the Nifty Bank

Nifty Bank (41,499.70)

Nifty Bank index broke the support at 39,750, but did not see follow-through selling. The index made a low of 39,419.80 and then has risen back from there. It has closed at 41,499,70, up 2.86 per cent for the week.

The price action last week on the daily chart indicates that the Nifty Bank index is getting strong support around 39,400. However, there are key resistances ahead at 42,200 and 42,800. The index has to breach 42,800 decisively to negate the danger of seeing a pull-back. Only in that case, the index can see a rise to 44,000-44,500, going forward.

Graph Source: MetaStock

Inability to break 42,800 and a pull-back from there can drag the index down to 39,500-39,000 again. So, it is important for the Nifty Bank index to get a strong follow-through rise from here to strengthen the bullish case.

Dow Jones (33,926.01)

The Dow Jones Industrial Average has been stuck in a narrow sideways range over the last few weeks. 32,950-34,350 has been the trading range over the last four weeks. This range can remain intact for some more time. In case if the Dow Jones breaks below 32,940 the downside can extend up to 32,500-32,400. Overall, 32,400-34,500 can be the wide range of trade for the short term.

Graph Source: MetaStock

Within this, the bias is bullish. As such, we expect the Dow Jones to break above 34,500 and rise to 35,500 in the coming weeks.

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