The Indian benchmark indices got a breather last week. Although the Sensex and Nifty 50 opened the week with a wide gap-down, they failed to get a strong follow-through selling. Sensex made a low of 52,260.82 and Nifty touched a low of 15,571.45. Both the indices recovered sharply from their lows and have closed higher for the week. Sensex is up 2.24 per cent and Nifty is up 2.37 per cent for the week. Will this bounce sustain? On the charts, the chances look less likely.

All sectoral indices also closed in the green last week. The BSE Health Care index rose the most and was up 5.25 per cent. The BSE IT index was up 4.09 per cent

Foreign Portfolio Investors (FPIs) continue to sell Indian equities. FPIs pulled out $3.546 billion from the equity segment last week. With this the month of March has seen a total outflow of $5.492 billion. For the calendar year, the FPIs’ net outflow from Indian equities stands at $14.694 billion. Unless FPIs start buying Indian equities, any bounce is likely to be short-lived.

Nifty 50 (16,630.45)

Nifty broke below the support at 16,000 as expected and fell towards 15,500 in line with our expectation. The index made a low of 15,671.45 and then bounced back sharply, recovering all the loss. Nifty has closed the week at 16,630.45, up 2.37 per cent.

The week ahead: The overall trend is down. There is limited room on the upside possible from current levels. Strong resistance is in the 16,750-16,800 region which has held well last week. Above this, 16,966 – the 200-Day Moving Average and 17,000 will be the next key hurdles. We expect the upside to be capped at 16,800 itself. In case that is broken, the upside can be restricted to 17,000. As such we can expect the Nifty to reverse lower anywhere from the 16,750-17,000 region in the coming days.

Support is at 16,350. The chances are high for the Nifty to break 16,350 and fall to 16,000 initially. A further break below 16,000 will then pave the way for a test of 15,500 – an important short-term support level to watch on the downside.

Medium-term outlook: The bearish view remains intact as long as the Nifty stays below 17,000. As mentioned above 15,500 is an important short-term support. A break below it can drag the Nifty down to 15,000. As mentioned last week, a corrective bounce from 15,000 to 16,000 is a possibility. But a break below 15,000 eventually will drag the Nifty down to 14,000-13,500.

We reiterate that we will start looking at the market from the buy side as Nifty falls towards 14,000. We expect the Nifty to bottom out anywhere in the 14,500-13,000 region. So, our inclination will tilt towards the buy side of the market in the above mentioned 14,500-13,000 region rather than becoming extremely bearish at that point of time.

Trading strategy: Last week we had recommended to take short positions at 16,370 and 16,620. The average entry of this trade is at 16,495. Strategy remains the same. Retain the 16,780. Trail it down to 16,340 as soon as Nifty touches 16,120. Move the stop-loss further down to 16,140 as soon as the index falls to 15,960. Book profits at 15,820.

Sensex (55,550.30)

Sensex tumbled 3.8 per cent initially and made a low of 52,260.82 on Tuesday. But thereafter the index made a sharp recovery to close the week up 2.24 per cent at 55,550.30

The week ahead: The 21- and 200-DMA resistances are at 56,240 and 56,824 respectively. Broadly, the upside can be capped at 57,000 this week. Support is at 54,600.

Sensex is likely to remain below 57,000 and break 54,600. Such a break can drag it to 53,000-52,000 levels again in the short-term.

Medium-term outlook: Above 57,000, the broad 58,000-59,000 zone is the crucial medium-term resistance. As long as the Sensex trades below 58,000 the overall bearish view will continue to remain intact. Support is in the 52,000-51,000 which can hold for some time. But eventually, Sensex is likely to break below 51,000 and fall to 50,000-48,000 over the medium term.

As mentioned last week, 48,000-46,000 is an important support zone that can halt the current fall. A fresh leg of rally is possible from this support zone.

Nifty Bank (34,546.25)

The Nifty Bank index broke below 34,000 and fell towards 32,000 as expected. The index made a low of 32,155.35 on Tuesday and has risen back sharply recovering all the loss. It has closed the week at 34,546.25, up

Cluster of resistances are poised in the broad 35,000-36,000 region. As such we see limited upside from current levels. We expect the Nifty Bank index to reverse lower anywhere from the 35,000-36,000 region. Such a move can drag the index down to 32,000-31,500 in the coming weeks. A break below 31,500 will increase the downside pressure and take it down to 31,000 and even 30,000, going forward.

Trading strategy: Last week we had recommended to take short positions at 34,408 and 34,920. The average entry level of this trade is at 34,664. Retain the stop-loss at 35,700. Trail the stop-loss down to 34,450 as soon as the index falls to 33,600. Move the stop-loss further down to 33,900 as soon as the index touches 33,100. Book profits at 32,700.

Global cues

The Dow Jones Industrial Average (32,944.19) broke below 33,000 last week. However, the fall did not extend up to 32,000 as was expected. The index made a low of 32,578.73 and bounced back from there to close the week at 32,944.19, down 2 per cent. The price action last week indicates that the Dow lacks strong sellers below 33,000. However, the bias on the chart is bearish. 34,000-34,500 will continue to act as a strong resistance. The Dow is still vulnerable to fall towards 32,000 and even 31,000 in the coming weeks. The 32,000-31,000 region is a strong support for the Dow. The price action in this zone will need a close watch for a trend reversal.

The outcome of the US Federal Reserve meeting on Wednesday will need a close watch as it can impact the Dow and the Indian indices.

What to watch
Resistance at 16,750-16,800 on Nifty
Resistance at 56,240-56,824 on Sensex
US Federal Reserve meeting outcome
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