Index Outlook: Indices on the brink of a reversal

With focus on the Fed meeting, the domestic market took baby-steps last week and remained volatile. The Fed meeting outcome of hiking rates by 25 basis points and signalling two more increases by this year-end has kept the global markets under selling pressure.

This has impacted domestic indices, and the Nifty and the Sensex witnessed intra-day declines. The rupee weakening to a three-month low has also kept the bellwether indices wavering in a narrow range. Further weakness in the rupee will have a negative impact on the market. The IMD indicates that the monsoon is likely to remain subdued for another week and its progress needs to be watched. The BoE interest rate decision and OPEC meetings are vital global events to be watched this week.

Nifty 50 (10,817.7)

Last week, the Nifty index climbed marginally in the midst of choppiness and added 50 points or 0.47 per cent. In the current volatility, the index recorded an intra-week high at 10,893 and began to decline. It could face a key resistance at around 10,900 once again.

Short-term trend: Though the short-term trend is up for the index, it lacks bullish momentum to exceed the key barrier of 10,900. However, there are positives — the short-term trend is up and the index hovers beyond 21 and 50-day moving averages and decisively closed above the 10,700-mark. However, the index faces an immediate resistance in the 10,900-10,930 band, which can limit the upside in the near term.

The daily price rate of change indicator displays negative divergence, indicating a potential near-term trend reversal. Further, the daily moving average convergence divergence and relative strength index charting downwards show signs of weakness. The weekly indicators depict mixed cues. A decisive fall below the immediate support level of 10,700 will confirm the trend reversal and drag the index down to 10,600 and 10,550 levels.

Further decline below this vital support level could weaken the uptrend and pull the index down to the next base levels of 10,420 and 10,350 in the short term. To alter the short-term uptrend, the index needs to emphatically plunge below 10,350 levels. Next supports are at 10,250 and 10,100.

On the other hand, a strong upward breakthrough of the 10,900-10,930 resistance zone is required to alter the bearish stance and take the index up to 11,000 and 11,100 in the short term. Hence, traders with short-term view should tread with caution. They can consider initiating short positions only on a strong fall below 10,700 levels with a fixed stop-loss.

Medium-term trend: Since early May, the index has been moving sideways in the wide band between 10,400 and 10,900. This sideways consolidation has kept the medium-term trend indecisive . The index has been testing the significant trend-deciding resistance at around 10,700 over the past four weeks.

A clear rally beyond this level is required to alter the downtrend that has been in place since this January high of 11,171. A strong rally will pave way for an up-move to 11,000 and 11,200 levels in the medium term. That said, if the index tumbles below the lower boundary of the sideways phase at 10,400, it will bring back bearish momentum and pull the index down to 10,200 and 10,000 in the medium term.

Sensex (35,622.1)

Even though the Sensex inched up 178 points or 0.5 per cent in the previous week, it witnesses selling pressure at higher levels. The indicators and oscillators in the daily chart also show signs of weakness backing the selling pressure. A fall below the immediate support level of 35,500 can pull the index down to 35,200 and then to 35,000-mark in the short term.

Further decline below the crucial support range between 34,800 and 35,000 can drag the index lower to 34,500 levels. Next vital supports to note are pegged at 34,600 and 34,300 levels. Conversely, an emphatic rally beyond 35,800 can push the index northwards to 36,000 in the near term.

That said, the range between 35,800 and 36,000 itself is a significant resistance to keep an eye on. A strong break above will push the Sensex higher to 36,200.

Medium-term trend: Over the last couple of months, the index wavers sideways at the 35,000-mark. A sturdy rally beyond 35,500 is needed to strengthen the uptrend and push the index higher to 35,800 and 36,000. A breakout of the 36,000 level will send the index up to 36,200 and 36,400 levels. However, a slump under the key base level of 34,000 can drag it lower to 33,400 levels in the medium term. Subsequent base is at 33,000 and 32,500.

Nifty Bank (26,417.4)

On Friday, the Bank Nifty fell 144 points or 0.55 per cent, moving below the key level of 26,500. For the week, the index has ended marginally in the negative territory, slipping 34 points or 0.13 per cent. Following a brief rally above 26,500, the index failed to sustain above this key resistance level last week. The indicators in the daily chart display negative divergence and are charting down, implying a potential trend reversal.

A conclusive plunge below the near-term support band between 26,000 and 26,100 will confirm the reversal and pull the index down to 25,500-25,600 zone in the short to medium term. On the upside, the index needs to decisively move beyond 26,500 initially for an up move to test the next resistance at 27,000. A conclusive breakthrough of 27,000 is needed to strengthen the bullishness and take the index up to 27,500 and 28,000 in the medium term.

Traders with a short-term perspective can take short positions if the index fails to move beyond 26,600 levels with a fixed stop-loss.

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