Technical Analysis

Index Outlook: Will Sensex and Nifty 50 hit new highs again?

Gurumurthy K BL Research Bureau | Updated on September 25, 2021

Be cautious about a reversal anytime though there is room for more upside

The Indian benchmark indices began the week on a weak note. The liquidity issue with China’s largest property developer Evergrande rattled the global equity markets with a strong sell-off at the beginning of the week. The Sensex and Nifty 50 fell over a per cent to make a low of 58,232.54 and 17,326.1 respectively on Tuesday and there was threat of a sharper correction. However, the recovery in the equities gained momentum after the US Federal Reserve meeting on Wednesday. The Fed said that it will begin its stimulus tapering “soon” but did not indicate when.

On the back of this, the indices made a smart recovery from the lows, making good all the losses, and surged to record highs. The strong bounce-back, coupled with a positive close for the week, indicates that the overall uptrend is still intact. However, some of the major global indices like the Dow Jones Industrial Average in the US and Nikkei 225 in Japan are showing early sign of a reversal. Though these indices also bounced back well last week, they have to see a strong follow-through rise from here and rise past their resistances to avoid a fall back.

Nifty 50 (17,853.2)

Nifty 50 rose sharply, breaking above the key resistance level of 17,800 last week. This break paved the way for a test of 17,950 as expected. The index made a high of 17,946.9 and had come off from there to close at 17,853.2 on Friday, up 1.52 per cent for the week.

The week ahead: The outlook for the week remains positive. Immediate support is at 17,550. Slightly deeper supports are at 17,370 and 17,250. The short-term outlook will remain positive as long as Nifty stays above 17,250 and the index can test 18,000-18,100 in the near term. A break above 18,100 can see an extended rise to 18,300. The level of 18,300 is an important resistance for the week that can cap the upside for now.

The near-term bullish outlook will get negated if Nifty breaks below 17,250. Such a break can drag it to 16,900.

Medium-term outlook: The medium-term trend remains up. We reiterate that 16,600 and 16,300 (revised lower from 16,400 mentioned earlier) are important medium-term supports. On the charts, there is room to test 19,600-19,800 on the upside from a medium-term perspective. A strong break above 18,300 can pave the way for that rise.

The medium-term uptrend will come under threat only if Nifty breaks below 16,300. Such a break will confirm that a correction has set in and drag Nifty to 15,950 and 15,400. The chances of this corrective fall extending even up to 15,000 cannot be ruled out over the medium term.

Sensex (60,048.47)

Sensex broke above the psychological level of 60,000 and made a record high of 60,326.31 last week. The index had come off from there and closed at 60,048.47 on Friday, up 1.75 per cent for the week.

For the week: Immediate support for Sensex is at 59,000. As long as the index stays above this support, a rise to 61,000 and 61,250 is possible. The region around 61,250 will be a strong resistance for the week. In case Sensex breaks below 59,000 it can fall to 58,200-58,000. It will have to sustain above 58,000 in order to keep the current uptrend intact. A break below 58,000 can give an early sign of a reversal.

Medium-term outlook: The medium-term trend remains up. On the upside, there is room to test 66,000-67,000 over the medium term. But if Sensex breaks below 58,000 it can see a corrective fall to 56,550 and 55,500 — the important medium-term support. In that case the rise to 66,000-67,000 could get delayed. The overall uptrend will come under pressure only if Sensex breaks below 55,500. In such a scenario, the index can fall to 54,200-54,000 and even 52,000 thereafter.

Nifty Bank (37,830.3)

The Nifty Bank index fell sharply in the initial part of the week. However, the index took support near 36,500 and recovered. It made a low of 36,525.95 on Tuesday and rose back, recovering all the loss made during the week. The overall outlook remains bullish. Strong support is in the 36,250-36,000 region. If the index sustains above this support zone, the view of seeing 39,000-39,500 on the upside remains intact.

Traders can go long on dips at 37,200 and accumulate at 36,500. Stop-loss can be placed at 35,900 for the target of 39,200.

The index will come under pressure for a correction only if it breaks below 36,000. Such a break can drag it to 34,000 initially. A break below 34,000 will pave the way for a deeper fall to 32,500.

Global cues

As cautioned last week, the Dow Jones Industrial Average (34,798) broke below 34,500 and 34,000 and tumbled over 2.8 per cent on Monday to make a low of 33,613. However, the index managed to claw back above 34,000 again and has closed on a flat note for the week. A cluster of resistances are poised in the 35,000-35,500 region. The Dow has to rise past 35,500 decisively in order to negate the danger of falling back again. Inability to breach 35,500 from here can keep the Dow under pressure to see 33,000 and even 32,000 on the downside, going forward.

Published on September 25, 2021

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