Index Outlook: Will Sensex, Nifty 50 hit new highs this week?

The buying spree witnessed in the equity market in the past week took the domestic bellwether indices — the Sensex and the Nifty 50 — to record highs. With the momentum intact, large-cap stocks can dominate the show. However, traders should tread with caution amid volatility. In the truncated week ahead, rupee movement, FII flow and IIP numbers need to be monitored along with the global markets.

Nifty 50 (17,323.6)

The Nifty 50 extended and accelerated its up-move in the past week by gaining 618 points or 3.7 per cent. The index had surpassed a key barrier at 17,000 last week. It has registered a new high at 17,340 on Friday and finished the week near this level.

The week ahead : After two months of range-bound movement in June and July, the index had decisively breached a key psychological resistance at 16,000 in early August and has accelerated. In August, the index had gained 8.7 per cent and managed to close above 17,000-mark.

The index has been in a short-term uptrend since it took support at around 15,500 in late July this year. This uptrend remains in place as long as the index trades above revised key support level of 16,500.

Key supports below this level are placed at 16,160 and then in the band between 15,900 and 16,000.

An emphatic plunge below this key short-term base level of 16,500 will start threatening the uptrend and drag the index lower to 16,000 or 15,900 levels in the short term. Key supports below 15,900 are pegged at in the 15,500-15,600 zone and 15,300.

In case of a corrective decline, the index can find support in the band between 17,000 and 17,075.

A slump below this zone can pull the index down to 16,764, the ceiling of the recent gap which is unfilled.

Thereafter, supports are placed at 16,700, 16,500 and 16,240 levels. The index continues to hover well above the 21- and 50-day moving averages.

That said, the index is hovering in the overbought territory as is evident from the daily Bollinger Bands in which it tests the upper boundary on both daily and weekly chart.

Likewise, the daily relative strength index is at 82.6, featuring in the overbought territory, implying a minor pause or correction can’t be ruled out at this juncture and such corrections are healthy from a long-term perspective. On the upside, the index faces resistance at 17,400 and a rally above this can test 17,500 levels. Resistances, thereafter, can be met at 17,800 and 18,000 levels.

Medium-term outlook : The medium-term uptrend that began from the April low at 14,151 got strengthened in the past week and the index made new highs.

This uptrend will remain in place as long as the index trades above the crucial trend-deciding level at around 15,600. A plunge below this level will be a threat to the uptrend and pull the index lower to 15,300 and then to 15,000 levels.

Next supports are placed at 14,800, 14,500 and 14,200. Immediate supports at 17,000 and 16,500 can come into play in case of a corrective decline. Medium-term resistances are at 17,500 and 18,000 levels.

Sensex (58,129.95)

The Sensex had surged 2005 points or 3.57 per cent in the week ago and scaled to record a new high at 58,194.7 levels. Immediate support for the index is at 57,500 and then at 57,300 levels. A decisive fall below the crucial support level of 57,300 can pull the index down to 56,300 with a minor pause at around 57,000 levels. Next supports below 56,300 are placed at 56,000 and 55,700

The index is currently featuring in the overbought territory, implying that a near-term corrective move can’t be ruled out in the coming weeks. Both the daily and the weekly RSI are hovering in the overbought territory.

An upward journey after a minor corrective decline can take the index higher to 58,400.

A further rally above this hurdle can pave the way for an up-move to 58,800 and then to 59,000 over the short term.

On the downside, an emphatic tumble below the vital base level of 56,000 will be a real threat to the short-term uptrend that has been in place from late July this year. Vital supports to note thereafter are at 55,500 and 55,000.

A conclusive fall below 55,000 will mar the short-term uptrend and pull the index down to 54,500 and 54,000 in the short term. We reaffirm that a decisive downward breakthrough of the crucial support level of 54,000 can extend the down-move to 53,500 levels. Next supports are at 53,000 and 52,770.

Since the April low at around 47,204, the index has been in a medium-term uptrend.

This up-trend will remain in place as long as the index trades above 52,000 levels. Subsequent supports are at 51,000 and 50,000. Investors with a long-term view can stay invested with a modified stop-loss at 50,000.

Nifty Bank (36,761.15)

After almost three months of failure to surpass the significant resistance at around 36,000, the index had eventually surpassed this hurdle in the past week by gaining 3 per cent. But the index now tests resistance at 37,000. With a minor pause at this level, the index is positively biased and can break through 37,000. In that case, it can trend upward to 37,500 initially and then to 37,700 and 38,000 levels. Resistance thereafter can be witnessed at 38,500 and 39,000 levels. Traders can hold the long positions with a fixed stop-loss as long as it trades above 36,500 levels.

But that said, a conclusive fall below the immediate support at 36,200 can weaken the bullish momentum and pull the index down to 36,000. An emphatic downward breakthrough of 36,000 can pull the Nifty Bank index lower to 35,500 and 35,000 levels over the short term.

A decisive fall below this level can pull the index down to 34,800 and then to 34,500.

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