Index Outlook: Will the bull run continue for Sensex and Nifty 50?

Gurumurthy K |BL Research Bureau | Updated on: Aug 06, 2022

There is room to rise but strong resistances are coming up that may halt the rally

The rally in the Indian benchmark indices continued for the third consecutive week, though at a slower pace. The Sensex and Nifty 50 were up about 1.4 per cent each last week.

The Reserve Bank of India’s (RBI) monetary policy outcome on Friday had no major impact on the stock market. The RBI increased the repo rate by 50-basis points to 5.4 per cent. Both the Sensex and Nifty 50 remained broadly stable all through the day after this event.

Among the sectors, barring the BSE Realty (down 2.93 per cent) and BSE Capital Goods (down 0.06 per cent) indices, others closed in the green. The BSE IT index outperformed by surging 3 per cent for the week.

The Foreign Portfolio Investors (FPIs) continue to buy Indian equities. They bought $1.79 billion in the equity segment last week. It is to be noted that the FPIs turned net buyers of Indian equities in July after selling for nine consecutive months. Continued FPI buying can support the Sensex and Nifty to move up further.

This will be a truncated week as the Indian markets are closed on Tuesday on account of a public holiday.

Nifty 50 (17,397.5)

Nifty traded higher all through the week. Every time it dipped towards 17,200, the index got bought. A high of 17,490.70 was seen last week. Nifty has closed the week at 17,397.50, up 1.39 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: Immediate outlook is bullish. Price action last week indicates that the index is getting strong buying interest around 17,200. So, this 17,200 will be a good first level of support. Below that, the 200-Day Moving Average (DMA) support is at 17,000. Third, a trendline support is at 16,800. Immediate resistance is at 17,500.

The chances are high for the Nifty to sustain above 17,200 itself and break above 17,500 in the coming days. Such a break can take it up to the crucial resistance level of 17,800-17,900 this week. A pull-back thereafter towards 17,600 cannot be ruled out. The price action in the 17,800-17,900 region will need a close watch.

Trading strategy: The target level of 17,350 on the long positions recommended last week has been hit. We prefer to stay out of the market in this truncated week.

Medium-term outlook: The level of 17,800-17,900 is a very crucial and strong resistance. The chances are high for the current rally to halt there. From a medium-term perspective, a pull-back from this resistance zone and a subsequent fall below 16,800 will be very bearish. That, in turn, will bring back the danger of seeing 15,000-14,500 on the downside into the picture.

Nifty has to break and close decisively above 17,900 to indicate strength and continue the rally. Failure to breach this hurdle this week will be a weak signal. More caution is needed as the Nifty approaches 17,800-17,900.

Sensex (58,387.93)

Sensex traded well above 57,500 all through the week. The sharp bounce from the intraday low of 57,577.05 on Thursday indicates the presence of strong buyers around 57,500. The index made a high of 58,712.66 and has come off from there to close the week at 58,387.93, up 1.42 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: The near-term outlook is positive. Immediate support is at 57,500. Below that 56,950-56,850 will be an important support zone. The 200-Day Moving Average (DMA) and a trendline support are poised in this region. Resistance is in the 58,700-58,750 region.

The bias is bullish. Sensex can remain above 57,500 and rise past 58,750 this week. That will then open doors to test 59,600-59,800 this week. If Sensex declines below 57,500, it can fall to test the 56,950-56,850 support zone.

Medium-term outlook: A crucial and a very strong medium-term resistance is in the 60,000-60,100 region. A strong trigger could be needed for the Sensex to breach this hurdle and move further up towards 61,000-62,000.

A pull-back from the 60,000-60,100 region and a subsequent fall below 56,850 will be very bearish. That in turn will bring back the danger of seeing fresh sell-off in the Indian markets. As such, more caution is needed as the Sensex approaches 60,000 levels. The price action in the 60,000-60,100 region will need a close watch.

Hurdles to watch
Resistance at 17,800-17,900 on Nifty
Resistance at 60,000-60,100 on Sensex
Resistance at 38,500-38,700 on Nifty Bank

Nifty Bank (37,920.60)

Nifty Bank index remained higher, but was stuck in a sideways range last week. The index oscillated between 37,250 and 38,230 all through the week. It has closed at 37,920.60, up 1.14 per cent for the week.

Chart Source: MetaStock

Chart Source: MetaStock

The near-term outlook is unclear. Immediate resistance is at 38,230. Next important resistance is in the 38,500-38,700 region. A break above 38,230 can take the index up to 38,500-38,700 this week. But thereafter whether it manages to surpass 38,700 or not will decide the next move.

A reversal from 38,700 can take the index down to 37,000 initially. A further break below 37,000 can take it down to 36,500-36,300.

On the other hand, a strong break above 38,700 will be bullish to see 39,800-40,000 on the upside.

Trading strategy: Traders who have taken long positions last week at 37,491 can hold it. Since there is not much clarity, revise the trading strategy as follows. Move the stop-loss up to 37,150. Trail the stop-loss up to 37,750 as soon as the index moves up to 38,100. Exit 50 per cent of the holding at 38,600 and move the stop-loss to 38,200 for the rest of the holding. Retain the target for the balance of the position at 39,800.

Global cues

The Dow Jones Industrial Average (32,803.47) was range bound last week. The index was stuck in between 32,385 and 32,975. The index has closed marginally lower by 0.13 per cent for the week at 32,803.47.

Crucial resistances are at 32,970 and 33,150. A strong rise past 33,150 will be needed to gain momentum and rise to 34,000. Immediate support is at 32,600. A sustained break below it can drag the index down to 32,000 and even lower in the coming days.

We will have to wait and watch the price action this week to get a clarity on whether the Dow is going to go up to 34,000 or will fall to 32,000 and lower.

Published on August 06, 2022
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