Index Outlook: Indices to face key resistance

After a strong rally in the beginning of the week, the key benchmark indices — the Sensex and the Nifty — lost momentum and witnessed a marginal decline. Nevertheless, despite volatility, the indices closed in the green, snapping their two-week fall.

The real GDP growth in the first quarter of the current fiscal plunged to a six-year low of 5 per cent. This, along with the mega PSU bank merger announcement, is likely to keep investors on tenterhooks in the near term. A weakening rupee, rising gold prices and the persisting US-China trade war will remain in focus in the truncated week ahead. The August domestic auto sales numbers will also need a watch this week. Investors should continue to tread with caution.

Nifty 50 (11,023.2)

Amid volatility, the Nifty index gained 193 points or 1.8 per cent last week. After an intra-day decline last Monday, it managed to recover, taking support at 10,800 levels. After testing resistance at ₹11,100, it retreated marginally and formed a spinning top candlestick pattern in the weekly chart, indicating indecisiveness.

Besides, the index has been in a sideways range in the band between 10,800 and 11,200 since July. As long as it trades in this band, uncertainty over the short-term trend will continue. A rally above the current resistance level of 11,100 can take the index up to test resistance at ₹11,200. A strong break above this barrier and the 200-day moving average will strengthen the bullish momentum and take the index higher to 11,400 and 11,500 levels in the short term. This move will also alter the short-term downtrend that has been in place over the past one-and-a- half months.

On the downside, a plunge below the immediate support level of 10,900 can pull the index lower to 10,800 once again. But an emphatic decline below this base will underpin the downtrend and drag the index down to 10,600 levels over the short to medium term.

Medium-term trend: The medium-term trend continues to be down, despite a corrective rally last week. The Nifty index has been in a medium-term downtrend since recording a new high at 12,103 in early June. An emphatic break above the trend-deciding level of 11,500 is required to alter this downtrend.

In such a scenario, the index can re-gain the bullish momentum and trend upwards to 11,700 and 11,800 over the medium term. A subsequent key resistance to note is placed at 12,000. On the other hand, a decline below 10,800 levels will reinforce the medium-term downtrend and pull the index down to subsequent support levels of 10,600, 10,400 and 10,100.

Sensex (37,332.7)

The Sensex was also choppy last week and managed to gain 631 points or 1.72 per cent. It has also formed a spinning top candlestick pattern in the weekly chart, depicting indecisiveness. The index can remain range-bound between 36,600 and 38,000 in the near term. An emphatic break above 38,000 will change the short-term trend — which is currently down — and take the index up to 38,400 and 38,600 in the ensuing weeks. We restate that a clear breakthrough of 38,600 levels is required to alter the medium-term downtrend, which has been in place from the June high of 40,312. Such a breakout can take the index up to the succeeding resistance at 39,000. Next vital medium-term resistances to note are placed at 39,400 and 40,000 levels.

Conversely, if the Sensex tumbles below the immediate support level of 36,800, it can fall to the lower boundary of 36,600. A further decline below 36,600 can pull the index lower to the next supports at 36,400 and 36,000 in the short term. Next supports to note are at 35,500 and 35,000. Investors can consider buying in declines while maintaining a medium term stop-loss at 36,400.

Nifty Bank (27,427.8)

Taking support at 27,000, the Nifty Bank rallied in the initial part of last week, but fell thereafter. However, the index managed to end on a positive note by gaining 469 points or 1.74 per cent in the previous week. Any corrective fall in the truncated week ahead can find support at 27,000 again.

A decisive rally beyond the immediate resistance at 28,000 can take it higher to 28,500. Subsequent, key resistances above 28,500 are placed at 29,000 and 29,500. A clear break-out of the 30,000-mark will change the medium-term downtrend and push the index higher to 30,500 and 31,000 over the medium term.

Conversely, if the index fails to find support at 27,000, a break below this level will strengthen the downtrend and drag the index lower to 26,500. A further decline below this base can see the downtrend extending to the next supports at 26,000 and 25,500 levels. The index has been range-bound between 27,000 and 28,500 over the last month and continues to move sideways. Traders should thread with caution.

Global cues

Last week, the Dow Jones Industrial Average jumped 774 points or 3 per cent, and closed at 26,403 levels. It tests the next resistance at 26,500. A further rally above this barrier can take it up to 26,800 and 27,000 levels. Key supports are at 26,000 and 25,700 levels.

The Nikkei 225 tests resistance at 20,700. We reaffirm that only a strong up-move beyond this level can take it higher to 21,000 and 21,300 levels. Supports are at 20,200 and 20,000 levels.

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