Technical Analysis

Index Outlook: Indian indices poised at crucial levels

Gurumurthy K | | Updated on: Jan 16, 2022
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A sustained rise from here can negate our broader bearish view

The rally in the Indian benchmark indices continues. The Sensex and Nifty 50 have risen further sharply to close in the green for the fourth consecutive week. Both the equity indices closed the week above the key levels of 61,000 and 18,100, respectively. Sensex rose 2.47 per cent and Nifty was up 2.49 per cent for the week. Both the indices have risen over 5 per cent in the last two weeks.

Among the sectors, the BSE Power index outperformed others last week by surging 7.4 per cent. This was followed by the BSE Capital Goods index (up 6.14 per cent) and the BSE Realty index (4.89 per cent).

In our yearly outlook for the Indian indices, we were bearish and had expected the Sensex to remain below 60,000 and Nifty below 18,000. A further rise from here may force us to review our outlook for the coming months. As such, we will be watching closely the price action in the coming week to gauge whether the bearish view still holds or not.

Nifty (18,255.75)

The Nifty 50 broke above the psychological 18,000 mark at the beginning of the week itself and continued to trade positive all through the week. Though there were sharp intraday fall towards the end of the week, dips are getting bought. This is a positive signal. Nifty has closed the week at 18,255.75, up 2.49 per cent.

The week ahead: Strong support for the week is in the 18,100-18,000 region. As long as the index stays above 18,000, the short-term outlook will remain bullish. A rise to 18,375 can be seen this week. A break above 18,375 can then pave way for a further rise to 18,500-18,600 levels.

Inability to breach 18,375 can drag the index down to 18,100-18,000. In that case a narrow range of 18,000-18,375 is possible for some time.

Nifty will have to fall below 18,000 decisively in order to come under pressure.

Medium-term outlook: Nifty has seen a strong break above 18,000 contrary to our expectation. This has posed a threat to our bearish outlook to see 15,000 levels on the downside. As mentioned above, a strong break below 18,000 is needed to bring back the bearish sentiment into the market. A rise past 18,375 will confirm the bullishness and negate our earlier bearish view. That, in turn, will force us to review our outlook to see higher levels of 19,000-20,000 before a reversal is seen again. Accordingly, we will then revise our downside target also for the correction that can happen later.

Trading strategy: For now, we will watch closely the price action around 18,375 in the coming week. Thereafter, we will take a call on the next trade on a clarity is obtained on whether our broader bearish view still holds or has got negated.

Sensex (61,223.03)

Sensex has risen above the crucial 60,000-61,000 resistance zone last week. The intra-day dips below 61,000 on Thursday and Friday have managed to get buyers at lower levels. As such the index has managed to sustain well above 61,000 and has closed at 61,223.03 on Friday, up 2.47 per cent.

The week ahead: Sensex has immediate support in the 61,000-60,500 region. The short-term outlook is bullish as long as the Sensex trades above 60,500. A rise to 62,000-62,250 is possible in the near-term.

The region around, 62,000-62,250 is a crucial resistance zone. A strong and sustained break above it will be very bullish from broader picture.

Inability to break above 62,250 can drag the Sensex lower to 60,500-60,000. In that case, a narrow range of 60,000-62,250 can be seen for some time.

Medium-term outlook: The rise past 61,000 has reduced the intensity of the bearish view we had to see 54,000-52,000 on the downside. However, that view has not got completely negated yet. A strong rise past 62,250 will only force us to change our earlier bearish view and look at the index from a bullish perspective. Sensex will now have to fall below 59,000 in order to come under pressure and keep our broader bearish view intact. Overall, we would want to watch the price action this week and see whether the 62,000-62,250 resistance zone is capping the upside or getting broken.

Nifty Bank (38,370.40)

The Nifty Bank index extended the rally for the third consecutive week. The index broke above the psychological level of 38,000 and indeed the resistance at 38,500 as well which we had expected to hold. The index made a high of 38,849 and has come-off from there to close at 38,370.4, up 1.67 per cent for the week.

Immediate support is at 38,000 and then next one is at 37,500. The index will have to fall below 37,500 to become bearish again and see 35,000 levels on the downside. As long as the Nifty Bank index stays above 38,000-37,500, the outlook is bullish to see 40,000 levels on the upside.

Trading Strategy: Traders who have taken short positions at 38,330 and 38,430 will have to be a little cautious as the danger of hitting the stop-loss at 39,200 looks high now. On a cautious note, we prefer bringing the stop-loss down to 38,625 and exit the shorts at 37,700.

Global Cues

The Dow Jones Industrial Average (35,911.81) was highly volatile last week. If fell to 35,639 on Monday and then rose back sharply to make a high of 36,513.88. However, the index failed to sustain higher and fell back to close the week 0.88 per cent lower at 35,911.81.

Immediate resistance is at 36,500 and a slightly higher and stronger one is at 37,000. The bias is bearish to see a break below 35,500 from here. Such a break can drag the index down to 34,500-34,000 in the coming weeks. Overall, 34,000-37,000 will continue to be the broader range of trader. The Dow is more likely to fall towards the lower end of this range from current levels.

Published on January 15, 2022

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