Index Outlook | Sensex, Nifty 50 paused above crucial base

The benchmark indices — the Sensex and the Nifty 50 — witnessed heavy selling pressure last week and plunged more than 5 per cent each, with negative global cues also adding to the pressure.

However, this week is crucial for the market as the Budget announcement on Monday can keep the indices choppy. Other events, such as January auto sales data and the RBI’s policy meeting need a close watch, apart from the volatile global markets.

Nifty 50 (13,634.6)

Though the Nifty 50 commenced the truncated past week on slightly a positive note, thereafter it began to decline on the back of selling interest. The index nose-dived 737 points, or 5.13 per cent, last week and conclusively breached a key psychological base of 14,000. This level could act as a key barrier now.

The week ahead: The on-going decline in the Nifty 50 has retraced more than 50 per cent of the Fibonacci retracement level of the near-term uptrend that had started from the late December low of 13,131. This means that the downtrend that began from the recently registered all-time high of 14,753.5 is strengthening. A decisive fall below the immediate support level of 13,500 can drag the index down to 13,200 and then to 13,000 in the short term.

The daily relative strength index (RSI) has entered the bearish region from the neutral region, and the weekly RSI has corrected from the overbought territory and is likely to enter the neutral region from the bullish zone. Besides, the daily price rate of change indicator is hovering in the negative territory, implying selling interest.

We restate that the short-term uptrend that started from the September 2020 low of 10,790 levels will remain in place as long as the index trades above 12,750 levels. A strong downward break below this level will alter the trend and drag the index lower to 12,400, 12,260 and 12,000.

Conversely, a rally above the immediate resistance level of 13,820 can lead to a pull-back rally and take the index higher to 14,000. A further break above this barrier can push the index higher to 14,280 and then to 14,600 levels. The next key resistances are at 14600 and 14,750 levels over the short term. Thereafter, the resistances are at 14,800 and 14,900.

Medium-term outlook: Last week’s sharp fall has begun to weaken the medium- to intermediate-term uptrend that has been in place from last March. The index recently breached a key base level of 14,000, and currently trades above the next base level of 13,500.

An emphatic plunge below this support can pull the index lower to 13,000 levels. Key medium-term supports thereafter at 12,430 and then 12,000. Significant medium-term resistances placed above 14,000 levels are at 14,500, 14,750 and 15,000.

Sensex (46,285.77)

Last week, the Sensex extended its recent fall and plummeted 2,592, or 5.3 per cent, conclusively breaking below the key base levels of 48,000 and 47,000. The index has now paused above the next support level of 46,000.

A further slump below this level can pull the index lower to 45,550. We reaffirm that as long as the index trades above the crucial support level of 45,000, the short-term uptrend that started from last September will remain in place.

Key supports below 45,000 are placed at 44,520 and then at 44,000.

On the other hand, a strong rally above the key barrier at 46,800 can push the index higher to 47,000 and then to 47,400 levels. A strong rally above these resistances can take the index higher to 48,000 and 48,500 levels over the short term. Subsequent resistances are placed at 49,000 and 49,520 levels. Investors with a long-term view can consider booking partial profit at this junction and stay invested with a stop-loss at 39,800.

Nifty Bank (30,565.5)

In the midst of volatility, the Nifty Bank limited the downside and outperformed the bellwether indices last week. It fell 601 points, or 1.9 per cent, in the past week.

That said, the index now tests a key support at 30,000. An emphatic tumble below this base can pull it down to 29,500 and then to 29,000 in the coming weeks. A conclusive fall below the key short-term base level of 29,000 will be a threat to the short-term uptrend that has been in place since last the September low of 20,400 levels. In that case, the index can decline to 28,500 and then to 28,000 levels.

Having said that, if the index manages to break above the immediate resistance in the 30,850 and 30,900 levels, it can move northwards to 31,500 and then to 32,000 levels over the short term. Resistances thereafter are at 32,500 and 32,800 levels.

A further rally above 32,800-33,000 band can take it upwards to 33,500 and then to 34,000 over the medium term. As the index tests a key support at around 30,000, traders should tread with caution. Fresh short positions can be initiated with a tight stop-loss only if the index declines below 30,000 levels.