Index outlook. Indices poised above key base

In the truncated week, the benchmark indices — the Nifty and the Sensex — continued to decline due to foreign outflows, as the Fed hinted at a rate hike in its December policy review. The rupee fell below the 68 level and closed at 68.14 a dollar, further dampening sentiments. The possible negative impact of demonetisation on consumption also weighed on the domestic equity market. The expiry of November series ahead and the jittery rupee are likely to keep the market on tenterhooks.

The Nifty 50 index has decisively breached key support levels over the last three weeks. This has strengthened the downtrend. Last week, the index tumbled 2.6 per cent and closed marginally below its 200-DMA, which is hovering at 8,130.

This week: Short-term trend is down for the index. However, it currently tests a key support in the band between 8,000 and 8,150 where its 200-day moving average is poised. Historically, the index has reversed higher from this band. Also, the daily relative strength index features in the oversold territory, implying that a corrective up-move could be in the offing. So the index may take support in this band and move sideways or witness a corrective rally in the coming week.

But a decisive slump below 8,000 levels will intensify the selling pressure and open fresh leg of a down-move that can pull the index down to 7,900 and 7,800 levels. An upward reversal, however, from the base zone of 8,000 and 8,150 can take the index higher to 8,200 or 8,300 in the near future. To alter the short-term selling pressure, it needs to conclusively rally beyond 8,300 levels. Then, the index can extend its rally further to 8,400 and 8,500 levels.

Medium-term trend: As the index has decisively resumed its downtrend that started from the September peak of 8,968, the medium-term trend is down. Investors holding their long positions can consider booking profits and staying on the sidelines for a while. An emphatic fall below the significant long-term support level of 8,000 will reinforce the bearish momentum and pave way for the downtrend to extend to 7,700 and 7,600 in the medium term. On the other hand, the index needs to breakthrough the key resistance at 8,500 to alter the ongoing medium-term downtrend that will take it northwards to 8,700 and then to 8,900 levels.

The Sensex plunged 668 points or 2.5 per cent in the truncated week. It has closed slightly below its 200-day moving average line. From the recent peak of 29,077, the index is now down 10 per cent. Nevertheless, it now trades above a significant long-term base at around 26,000. If the index manages to hold up above this base in the coming weeks, some positive signs could emerge. But a conclusive decline below 26,000 will increase the selling pressure and drag it down to 25,500 and then to 25,000 in the medium term. Upward breach of the immediate resistances at around 26,500 where the 200-DMA is poised can be construed as initial signs of optimism. A corrective up-move to 27,000 or 27,500 is then possible in the ensuing weeks.

Last week, Bank Nifty plummeted almost 4 per cent, underperforming the broader indices. The index currently tests the lower boundary of the sideways movement in the band between 19,000 and 20,000 that has been in place since early September. Strong downward break-out of 19,000 will strengthen the bearish momentum and bring back selling pressure. Then the index can decline initially to 18,800 and then to 18,500 in the short term. Subsequent vital support below 18,500 is at 18,000. Traders with a short-term view can initiate fresh short positions on a strong fall below 19,000 with a stop-loss at 19,300. Immediate resistances are at 19,300 and 19,500. Conclusive upward breakthrough of 19,500 is required to alter the short-term selling pressure and take the index northwards to the 20,000-mark.

After a strong rally, the Dow Jones Industrial Average managed to hold its gains and closed at 18,867.9 last week. The daily indicators feature in the overbought levels and a near-term corrective decline is possible in the index. A decline below 18,800 levels can pull the index down to 18,600 in the near term. Key supports below 18,600 are placed at 18,400 and 18,300 levels. Continuation of the up-move can take the index higher to 19,000 levels.

The Nikkei 225 index surged 592 points or 3.4 per cent, decisively breaking through a key resistance at 17,500. It currently tests its next key hurdle at 18,000. Further rally beyond this resistance can take the index higher to 18,500 in the short term.

Inability to move beyond 18,000 can keep the index vacillating between 17,500 and 18,000 for a while. Key supports are at 17,235 and 17,000.

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