Index Outlook . Indices continue to test key resistance

The domestic benchmark indices — the Sensex and the Nifty — witnessed selling pressure at higher levels and ended the week on a negative note. The indices lacked fresh momentum to move past key barriers. While the IIP (index of industrial production) in April surged sharply, the CPI inflation for May also moved up. Concerns over slowing global growth and escalating trade war, after India imposed tariffs on 29 US products, kept markets under pressure. Investors now keenly await the Fed’s decision and G20 summit in the coming week.

Nifty 50 (11,823.3)

Last week, the Nifty index rallied initially, but began to decline after testing resistance in the 12,000-12,040 range. The index is down by 47 points or 0.4 per cent. Failure to move beyond this resistance band can drag the index down to the immediate support in the 11,700-11,750 zone.

The daily relative strength index features in the neutral region and the weekly RSI is on the brink of entering the neutral region from the bullish zone. Also, the daily price rate of change indicator had entered the negative terrain, implying selling interest. A further slump below 11,700 can pull the index down to the next key support at 11,600. Such a fall will weaken the short-term uptrend and signal the possibility of a trend reversal.

We reiterate that an emphatic decline below the significant support level of 11,600 can drag the index lower to 11,500 or 11,400 levels in the coming weeks. A decisive plunge below 11,400 will alter the short-term uptrend that has been in place since February this year. Next key supports of the index are at 11,250 and 11,150 levels.

Conversely, if the index manages to break above the key resistance in the 12,000-12,040 range, it can push the index higherto 12,200 and 12,500 in the short to medium term. Investors with a medium-term perspective can remain invested with a stop-loss at 11,350 levels.

Medium-term trend: There is no major change in the medium-term uptrend, which is still up. The uptrend will remain intact as long as the index trades above the major support in the 11,000-11,100 band. An emphatic beak above the key resistance level of 12,000 can take the index up to 12,500 over the medium term. But a conclusive fall below 11,000 will mitigate the uptrend and drag the index down to the next support level of 10,800 and 10,600 in the medium term. Immediate supports are at 11,700 and 11,500 levels.

Sensex (39,452)

The Sensex declined 163 points or 0.4 per cent amid volatility in the previous week. It tested the key psychological resistance level of 40,000 and began to decline. The corrective decline can find support at 39,000 in the near term. A further decline below this base level will strengthen the down-move and drag the index down to 38,600 and 38,000. A decisive plunge below 38,000 will be a threat to the short-term uptrend. Subsequent key support levels are at 37,500 and 37,000. On the other hand, a conclusive break-out of 40,000 levels will strengthen the uptrend and take the index up to 40,400 and 40,800 levels in the medium term. A sideways consolidation in the wide 38,000-40,000 band is possible if the index struggles to move beyond the 40,000-mark.

Nifty Bank (30,614.3)

Once again, the Nifty Bank index has underperformed the benchmark indices and tumbled 452 points or 1.46 per cent last week. The index failed to move above the key resistance of 31,500 and started to decline. The daily relative strength index displays negative divergence, signifying trend reversal.

On Friday, the index slumped 1.2 per cent, breaking below the next key support at 31,000. Moreover, it also breached the 21-day moving average. However, the index tests another support at 30,500.

An emphatic downward breakthrough of this base level will reinforce the bearish momentum and drag the index down to 30,250 and 30,000 in the short term.

Traders with a short-term perspective can initiate fresh short positions on a downward reversal from 31,000 levels, with a fixed stop-loss.

A strong fall below 29,500 can mar the short-term uptrend. In such a scenario, the index can continue to trend downwards to 29,000, which is the next key support to note.

On the upside, a strong rally above the vital resistance level of 31,500 is needed to bring back bullish momentum and take the index up to 31,700 and 32,000 over the short to medium term.

Global cues

The Dow Jones Industrial Average traded in a narrow range last week and advanced 105 points or 04 per cent to close at 26,089.6 levels. It formed a doji candlestick pattern in the weekly chart, depicting a neutral stance. The index continues to test resistance at 26,000.

A significant break above this level is needed to change the short-term downtrend and take it up to 26,300 and 26,500 levels. On the downside, the index has vital supports at 25,500 and 25,000. A strong tumble below the support level of 25,500 can pull the index lower to 25,000.

The Nikkei 225 index extends the up-move by advancing 232 points or 1.1 per cent to close at 21,116.8. The index tests resistance at 21,000. Only a decisive break above this level can take the benchmark higher to 21,300 and 21,500 levels. Key supports to note are placed at 20,500 and 20,300 levels.

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