Index Outlook: Supports to limit the downside

Nifty 50 and Sensex surged to new highs in line with our expectation last week. Nifty made a high of 18,887.6 and Sensex touched 63,583.07 on Thursday. Though the indices have come off from their highs, the overall picture is still positive. The indices have closed over 0.9 per cent each last week.

The pull-back move seen from the highs last week is just a corrective dip within the broad uptrend. We expect this correction to be short-lived. Both Sensex and Nifty have strong supports which can limit the downside from the current levels. As such, we expect the Sensex and Nifty to resume their uptrend going forward.

All sectoral indices closed in green last week. The BSE Realty index outperformed by surging 4.2 per cent last week. This was followed by the BSE Metals and BSE FMCG indices. They were up 3.36 and 2.28 per cent respectively.

FPI flows

The foreign portfolio investors (FPIs) continue to pour money into the Indian equities. They have pumped in $1.47 billion in the equity segment last week. The month of November has seen a net inflow of over $4 billion. The continuing foreign money inflow to the Indian equities is positive for the Sensex and Nifty. This can help the benchmark indices to scale new highs going forward.

Nifty 50 (18,696.10)

The support at 18,400 held very well last week. Nifty made a low of 18,365.50 on Monday and rose sharply breaking above the resistance at 18,550. The index made a new high of 18,887.6 on Thursday. It has come off from there to close the week at 18,696.10, up 0.99 per cent.

The week ahead: The outlook is bullish. The pull-back from the high last week is just a correction. Strong supports are at 18,600 and 18,500 which can be tested this week. However, a fall below 18,500 looks less likely. We can expect the Nifty to reverse higher anywhere from the 18,600-18,500 region. That fresh leg of upmove can take the Nifty up to 18,900-19,000 initially and then to 19,250 eventually in the near term. It will also keep the upside open to test 19,400 over the short term.

The 21-Day Moving Average (MA) support at 18,372 is an important support to watch. The short-term outlook will turn negative only if the Nifty breaks below this support. Such a break can drag it down to 18,100 and 18,000. But such a fall looks less probable.

Graph Source: MetaStock

Medium-term outlook: The overall bullish outlook is intact. Cluster of supports are poised around the psychological level of 18,000. As long as the Nifty stays above 18,000, the outlook is bullish to see 19,750-19,850 over the medium term. Thereafter, a correction is possible.

From a long-term perspective, Nifty has the potential to target 20,300-20,500 and even higher levels in the coming months.

Trading strategy: Hold on to the long positions taken at an average level of 18,250. Move the stop-loss up to 17,800 from 17,400. Trail the stop-loss up to 18,600 as soon as the index moves up to 19,100. Revise the stop-loss further up to 19,100, when Nifty rallies to 19,950. Book profits at 20,100. We repeat that this trade recommendation is for a minimum holding period of three months.

Sensex (62,868.50)

As expected, Sensex rose breaking above the resistance at 62,700 last week. It made a new high of 63,583.07 on Thursday. The index has closed the week at 62,868.50, up 0.92 per cent.

The week ahead: The short-term trend is up. The reversal from the high last week will just be a corrective dip. Supports are at 62,670 and 62,350. Intermediate resistance is at 63,350.

We expect the Sensex to reverse higher from either 62,670 itself or from 62,350 and break above 63,350. Such a break can take the Sensex up to 64,500 and 64,650 in the short term.

Key support is in the 62,000-61,800 region. The short-term outlook will turn negative only if the Sensex falls below 61,800. Such a break, though less likely can drag the Sensex down to 61,500 and lower.

Graph Source: MetaStock

Medium-term outlook: The bigger picture remains positive. Strong support is in the 61,000-60,000 region. Sensex can rally to 65,000-65,300 over the medium term.

From a long-term perspective, Sensex has room on the upside to test 66,000-66,500 in the coming months.

Supports to watch

18,500-18,600 on the Nifty

62,670-62,350 on the Sensex

34,000-33,500 on the Dow Jones

Nifty Bank (43,103.75)

The Nifty Bank index remained broadly stable, and range bound around 43,300 last week. The index touched a high of 43,515.05 and has come off from there. It has closed the week at 43,103.75, up 0.28 per cent.

Graph Source: MetaStock

The outlook is bullish. Immediate support is at 42,900. Below that 42,675 and 42,425 are the next important supports. Some resistance is around 43,500. The view of seeing a gradual rise to 44,000 in the short term remains intact. A decisive break above 43,500 can trigger this rise.

The bigger picture is also positive. The Nifty Bank index can rise to 45,000 over the medium term. In the long term, the upside is open for the Nifty Bank index to target 46,000 and 46,500.

Global cues

The Dow Jones Industrial Average (34,429.88) fell initially last week. However, the index took support from above 33,500 and has risen back sharply. The Dow made a low of 33,583.77 and then surged to make a high of 34,595.51. It has come off from the high to close the week at 34,429.88, up 0.24 per cent.

Graph Source: MetaStock

The test of 35,000 on the upside that we had mentioned last week is yet to happen. The overall outlook is bullish. The Dow Jones can test 35,000 if it manages to sustain above 34,000 now.

Broadly, we can expect the Dow to remain in a sideways range between 33,500 and 35,000 for some time. Thereafter, the index can break above 35,000 eventually and rise to 37,500-38,000 in the coming months.

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