Index Outlook: Indices poised at new highs

A decisive mandate in the Lok Sabha election, with the NDA retaining power, had triggered a strong rally in the domestic equity market in the midst of global weakness. Both the Sensex and the Nifty registered new highs last week. Now, the focus has shifted to monsoon, falling crude oil price and the prolonged US trade war. Investors should, however, remain cautious given the weak global markets and derivative expiry of the May contract on Thursday.

Nifty 50 (11,844.1)

The Nifty skyrocketed 3.7 per cent on Monday, with a large gap-up open, taking cues from the exit polls that indicated a clear majority for the NDA. However, the index turned volatile thereafter and moved sideways. Following the results of the Lok Sabha election on Thursday, the index registered a new high at 12,041 and closed in the negative territory due to profit-booking. But it regained bullish momentum and surged 1.6 per cent on Friday to close the week on a positive note, gaining 3.8 per cent for the week. The index appears to have decisively breached the key resistance at 11,750 finally. Short-term trend is up for the index. The daily and the weekly relative strength indices have re-entered the bullish zone from the neutral region, implying bullish momentum.

Nevertheless, corrective declines due to profit-taking or bearish global cues can drag the index down, and it could find support at 11,750 initially, and then at the ceiling of the recent gap at around 11,600. A further slip below 11,600 can make the index take support at either 11,500 or 11,400 levels. As long as the index trades 11,400, the short-term uptrend will remain intact.

The index now faces resistance ahead at 11,900. A decisive rally above this level can take it up to the 12,000-mark, which is a key psychological level. An emphatic break-out of 12,000 can lead to a fresh rally, and the index can trend up to 12,200 and 12,500 over the short to medium term. Those with a medium-term perspective can stay invested with a fixed stop-loss at 11,350 levels.

Medium-term trend: The recent strong rally has strengthened the medium-tem uptrend that has been in place since taking support at around 10,000 in late October 2018. Key support in the band between 11,000 and 11,100 had cushioned the index in mid-May this year. Subsequent resumption of the uptrend has surpassed key barriers at 11,500 and 11,700-11,750 band. These levels will act as a key support for the index. A decisive break above 12,000 can take the index higher to 12,500 over the medium term. On the downside, a conclusive fall below the vital support band between 11,000 and 11,100 is needed to mitigate the uptrend and drag the index down to 10,800 and 10,600 levels.

Sensex (39,434.7)

A strong rally of 1.6 per cent on Friday helped the Sensex regain bullish momentum and end the week with a windfall gain of 3.9 per cent. The index had recorded a new high at 40,124last Thursday. The medium- as well as short-term trends are up. But the index faces a key resistance ahead at 39,600. A decisive move above this level can it up to 40,000. A further rally above this barrier can take the index to new highs at 40,400 and 40,800 levels over the medium term.

Conversely, a corrective decline can find support at 39,000, 38,600 and 38,000, which is the floor of the recent gap. A strong fall below 38,000 will be a threat to the short-term uptrend. Next key supports are pegged at 37,500 and 37,000 levels.

Inability to break above 40,000 will keep the Sensex consolidating sideways in a wide range between 38,000 and 40,000 for a while.

Nifty Bank (31,212.5)

The Nifty Bank index advanced 1,762 points or almost 6 per cent last week, amid choppiness. It has decisively breached key resistances at 30,000 and 30,500. The short-term outlook is bullish for the index. It can continue to trend up and test resistances at 31,500 and 31,700.

An emphatic rally above these resistances can take the index up to 32,000 in the short to medium term.

However, a slump below the immediate significant base level of 30,500 can bring back selling interest and drag the index down to 30,000 levels, leading to a corrective-decline. That said, only a fall below 29,500 is required to alter the short-term uptrend. Subsequent base at 29,000 can cushion the index. Traders can go long with a fixed stop-loss at 30,500.

Global cues

Last week, the Dow Jones Industrial Average was volatile and slipped 178 points or 0.7 per cent to end at 25,585. It tests a key support at 25,500. A strong fall below this level can drag the index down to 25,200 and 25,000.

On the other hand, a decisive rally above the immediate resistance at 26,000 can bring back positive momentum and take the index up to 26,300 and 26,500. Subsequent resistances are at 26,750 and 27,000.

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