Index Outlook: Near-term outlook is bearish

Last week, the benchmark indices breached key support levels and fell sharply. Tax-related Budget proposals that had spooked foreign portfolio investors (FPIs), continued to weigh on the market. Finance Minister Nirmala Sitharaman, standing firm on the proposals, despite pleas by FPIs, triggered a significant fall in indices on Friday.

Domestic corporate earnings, rupee action and progress of the monsoon are key factors to watch in the July month derivatives expiry week. On the global front, ECB rate action and US GDP data release are key events to note.

Nifty 50 (11,419.2)

Following an initial rally, the Nifty index encountered a key resistance at 11,700 and declined 133 points or 1.2 per cent for the previous week. On Friday, the index had tumbled 1.5 per cent, breaching a key support at 11,500 . This fall has strengthened the downtrend that has been in place from the June high of 12,103. The index trades well below the 21- and 50-day moving averages. The daily relative strength index has entered the bearish zone from the neutral region and the weekly RSI features in the neutral region with a downward bias.

Also, the daily price rate of change indicator hovers in the negative territory, implying selling interest. Inability to move beyond the near-term resistance level of 11,700 has strengthened this barrier. Going forward, an emphatic break-out of this level is needed to bring back bullish momentum. Such a break can witness a corrective up-move to 11,800 and then to 11,850 levels in the short term. A further break above the vital resistance in the 11,850-11,900 band will reinforce the bullish momentum and push the index higher to 12,000, which is a key psychological resistance.

However, the index currently tests next crucial support at 11,426, the floor of the gap created in mid-May this year with a negative bias. A strong plunge below this base will further strengthen the short-term downtrend and drag the index lower to the subsequent supports at 11,250 and 11,150 levels in the ensuing weeks. With the recent fall, investors with a medium-term perspective can book profits and re-enter at lower levels.

Medium-term trend: Last week, the index had breached a key base at 11,500 and continued to trend down. Next key medium-term support is at 11,200. The medium-term uptrend will stay in place as long as the index trades above the support band of 11,000-11,100. But a decisive fall below this base level will alter the uptrend and drag the index down to next key medium-term support level of 10,800 and 10,600 over the medium term. Conversely, an emphatic break-out of the resistance at 12,000 is required to bring back bullish momentum. Such an upmove will strengthen the uptrend and take it northwards to 12,500 in the medium term.

Sensex (38,337)

The Sensex extended the down-move and declined 399 points or 1 per cent last week. After an initial rally above 39,000, the index failed to sustain and resumed its downtrend. Subsequently, it breached the key support at 38,600 and extended the downtrend. Since marking an all-time high at 40,312 in early June, the index has been in a short-term downtrend. It hovers way below the 21- and 50-day moving averages. The indicators and oscillators in the daily chart hover in the bearish zone. The index can continued to trend downward and test support at 38,000 in the coming week.

A strong tumble below this base will strengthen and drag the index down to the next supports at 37,500 and 37,000 levels. On the other hand, the key resistances at 38,600 and 39,000 can limit the upside. An emphatic rally beyond 39,000 can witness a corrective up-move to 39,500 and 40,000 levels. However, only a strong break-out of the key barrier in the 40,000-40,200 band will underpin the medium-term uptrend and take the index higher to 40,400 and 40,800 levels over the medium term.

Nifty Bank (29,770.3)

Last week, the Nifty Bank index plummeted 831 points or 2.7 per cent, breaking below a vital support level of 30,500, decisively. The index continues to underperform the bellwether indices. With the recent fall, the daily RSI has entered the bearish zone and the weekly counter-part has entered the neutral region from the bullish zone. Besides, the daily as well as the weekly price rate of change indicators hover in the negative territory, implying selling interest. The Nifty Bank trades well below the 21- and 50-day moving averages. The near-term outlook is bearish for the index. It can find support at 29,500.

A conclusive fall below this level can pull the index lower to 29,000 and 28,600 over the medium term. Key immediate resistances are at 30,000 and 30,300. Traders with a short-term view can go short in rallies with a stop-loss at 30,150 levels. On the upside, only a strong rally above 30,500 can bring back bullish momentum and take the index higher to 31,000. Subsequent resistances are placed at 31,500 and 31,700 levels.

Global cues

The Dow Jones Industrial Average retreated marginally by declining 177 points or 0.6 per cent to close at 27,154 levels. Key supports are at 27,000 and 26,500 levels. Near-term resistances are pegged at 27,360 and 27,500

The Nikkei 225 had declined 218 points or 1 per cent to close at 21,466 amid volatility. Resistances are at 21,750 and 22,000. Supports to note are placed at 21,000 and 20,700 levels.

COMMENT NOW