Index Outlook: Key indices at the crossroads

It was a lacklustre week and the key bellwether indices — the Sensex and the Nifty — remained flat. Investors should continue to tread with caution in the coming week as well and keep an eye on the earnings announcement of key blue-chip stocks, crude oil movement and strengthening of the rupee. On the global front, the Fed kept the rates unchanged, citing lack of inflation pressure in the previous week. The US trade balance and CPI data can lend direction to the US’ indices that have been range-bound.

Nifty 50 (11,712.2)

The Nifty index was choppy and remained sideways in a truncated week of trading. It fell marginally by 42 points or 0.36 per cent. The index could remain volatile. Over the past five weeks, it has been testing a key resistance in the 11,700-11,750 band. We reiterate that a decisive break-out from this resistance is required to reinforce the bullish momentum and take the index up to 11,850 and 11,900 in the ensuing week. A strong rally above 11,900 will push the index northwards to the next vital resistance at 12,000, which is a psychological level. The index hovers well above the 50- and 200-day moving averages.

The daily relative strength index has displayed a negative divergence and slipped into the neutral region from the bullish zone from the neutral region, whereas the weekly RSI continues to feature in the bullish zone. Similarly, the daily price rate of change indicator shows negative divergence and is likely to enter the negative terrain, while the weekly price rate-of-change indicator features in the positive terrain.

The signs of negative divergence indicate a potential trend reversal. Any corrective decline can find support at the immediate base level of 11,600. A further decline can drag the index down to the next key support level of 11,500 in the near term. Hence, traders with a near-term view should tread with caution.

An emphatic break below 11,500 can bring back selling pressure as well as profit-booking in the index and drag it lower. In such a scenario, the index can extend the corrective fall to 11,400 and 11,300 over the short term. Subsequent key support is placed in the 11,000-11,100 band. A strong fall below 11,000 is required to alter the short-term uptrend and drag the index lower to 10,800 levels. Subsequent supports to watch are at 10,600 and 10,400 levels.

Medium-term trend: As the index remains range-bound over the past few weeks, the medium-term trend is still up. A conclusive break above the current resistance band of 11,700-11,750 will underpin the primary uptrend and take the index up to 11,900 and 12,000 levels over the medium term. On the other hand, if the index plunges, breaking the key support at 10,600, it can trend down to 10,400 and 10,000 levels over the medium term.

Sensex (38,963.2)

The index moved in a narrow range last week. Declining 0.27 per cent, it closed the week in the negative territory. It continues to test a key resistance at 39,000 over the past five weeks. A strong rally above this level can strengthen the uptrend and push the index higher to 39,400 once again.

A break-out of the level can extend the rally to 39,800 and 40,000 levels in the short term. Both the daily and the weekly indicators as well as oscillators show mixed signs. Failure to move beyond 39,000 and a subsequent downward reversal can find supports at 38,800 and 38,600 in the coming weeks. However, a conclusive decline below 38,600 can drag the index down to 38,200 and 37,800 in the short term. A further decline below the key support level of 37,800 can drag the index down to the base levels of 37,500 and 37,000. As long as the index trades above the key base level of 36,500, the short-term uptrend will remain intact.

That said, a plunge below this base level can result in extension of the decline and the index can then test supports at 36,400 and 36,200 levels. The medium-term uptrend will remain in place as the index trades above 35,800. Investors with a medium-term view can stay invested with a stop-loss at 36,400 levels.

Nifty Bank (29,954.1)

Last week, the Nifty Bank index fell 0.2 per cent. Since late March this year, it has moved sideways in the 29,500-30,500 range. An emphatic break-out of this is needed for a clear short-term direction. As long as the index trades in this band, the near-term trend will be sideways. A strong tumble below 29,500 will bring selling pressure and drag the index down to 29,280 and 29,000 levels in the short term. A further decline below the next key support level of 28,500 will weaken the short-term uptrend and drag the index down to 28,000 and 27,500.

On the upside, an upward breakthrough of the upper boundary at 30,500 will strengthen the bullish momentum and take the index higher to 31,000. Succeeding key resistances are at 31,500 and 32,000 levels. Traders with a short-term perspective should continue to tread with caution as long as the index trades below 30,500. A break above 30,500 will be a positive cue for taking long positions with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average closed on a flat note at 26,504. Forming a spinning top candlestick pattern in the week chart which implies indecisiveness, the index tests 26,500, which is a significant long-term resistance. A strong breakout of this level will take the index up to 26,750 in the short term. Further resistance is at 27,000. A conclusive fall below the immediate support at 26,240 can drag the Dow Jones down to 26,000 and ₹25,750 levels. Short-term support is at 26,000.

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