Will Sensex & Nifty 50 sustain the upmove?

Gurumurthy K |BL Research Bureau | Updated on: Apr 02, 2022

A rise to test the crucial resistances is possible this week

The sideways consolidation in the Indian benchmark indices got resolved on the upside last week. Sensex and Nifty 50 broke their respective range of 57,000-58,500 and 17,000-17,400 on the upside. Russia announcing that it will reduce the troops in the Ukraine capital for the peace talks to progress gave a breather to the markets. That, in turn, helped the Indian benchmark indices to move up, breaking their sideways range.

However, uncertainty continues to be in place as the global majors doubt whether Russia will keep its word. The developments on the Russia-Ukraine front will need a close watch as they would have a major impact on the equity markets.

Among the sectoral indices, the BSE Health Care (-0.5 per cent), BSE Consumer Durables (-1.42 per cent) and the BSE Metals (-1.82 per cent) were down last week while all other indices closed in green. The BSE Realty index outperformed by rising 6.93 per cent last week. It was followed by the BSE Bankex and BSE Power indices, both up over 4 per cent.

Foreign Portfolio Investors (FPIs) were net buyers of Indian equities for the second consecutive week. However, the pace of buying continues to be slow. They bought about $57 million. The March month has seen a total net outflow of $4.3 billion. Thus, the total outflow so far this year stands at $13.75 billion for the first three months. The FPIs have to increase the momentum of their purchase to push the indices sharply higher.

Nifty 50 (17,670.45)

Nifty fell, tested 17,000 on Monday, but managed to recover well thereafter. The 17,000-17,400 range has been broken on the upside. Also, Nifty has closed on a strong note at 17,670.45, up 3.02 per cent for the week.

The week ahead: The outlook is bullish. The first level of support will be 17,400. Then the next strong support will be the 17,350-17,300 region. Resistance is at 17,850-17,870. The chances are high for the Nifty to break above 17,870. Such a break will open doors for the Nifty to rise towards 18,100-18,200 in the next one-two weeks.

Nifty has to break below 17,300 to come under pressure to test 17,000 on the downside in the short term. In addition to this, a decisive break below 17,000 will now be necessarily needed to turn the outlook bearish.

Medium-term outlook: Crucial resistance is in the 18,100-18,200 range. Nifty has to rise past 18,200, to negate our earlier bearish view of seeing 15,000-13,000 on the downside. A break above 18,200 will increase the chances of seeing a rally to 19,200-19,500 and even higher levels, going forward.

But for a break above 18,200 to happen, a fresh and strong trigger is needed. For now any such strong trigger looks less likely. As such we expect the upside to be capped at 18,100-18,200 and the Nifty is more likely to reverse lower. A subsequent fall below 17,000 thereafter can drag the Nifty down to 15,000 in the coming months.

As mentioned last week, since the rally to 18,000-18,200 is happening now, the chances of seeing 14,500-13,000 stand reduced. As such we can expect the downside to be limited to 15,000.

Trading strategy: Go long now. Accumulate on dips at 17,570 and 17,510. Keep the stop-loss at 17,320. Trail the stop-loss up to 17,720 as soon as the index moves up to 17,830. Move the stop-loss further to 17,860 as soon as the index touches 17,930. Book profits at 17,980.

Please note that since we expect the upside to be capped at 18,200 and a reversal thereafter, traders should exit the longs at the above-mentioned levels and start approaching the market form the sell side.

Sensex (59,276.69)

Sensex saw a decisive break above the 100-Day Moving Average (DMA) resistance last week. The index closed at 59,276.69, up 3.3 per cent for the week.

The week ahead: The decisive rise above 58,000 has turned the short-term outlook bullish. The region between 58,500 and 58,000 will now be a very strong support. Immediate resistance is at 58,670. A break above it will pave the way for a further rise towards 60,800-61,000 in the next one-two weeks.

Sensex has to fall below 58,000 to come under pressure for a fall to 57,000 and lower levels again.

Medium-term outlook: The possible rise to 61,000 in the coming weeks will reduce the danger of seeing 48,000-46,000 on the downside that we have been mentioning so far. However, a strong rise past 61,000 is needed to turn the outlook completely bullish and see levels of 64,000-66,000. But as mentioned above, a strong trigger is needed for that to happen.

In the absence of any new triggers, Sensex is likely to reverse lower from 61,000 and keep our medium-term bearish outlook intact. However, the downside in this case will get limited to 51,000-50,000 itself.

Nifty Bank (37,148.5)

The Nifty Bank index rose back sharply last week, recouping all the loss made in the prior week. As such our view of seeing a fall to 34,000 has got negated. The index has closed at 37,148.5, up 4.9 per cent for the week.

What to watch
Resistance at 18,100-18,200 on Nifty
Resistance at 60,900-61,000 on Sensex
Resistance at 38,000-38,100 on Nifty Bank

The near-term outlook is bullish. However, there is limited room left on the upside. A strong channel resistance is coming up in the 38,000-38,100. A strong rise past 38,100 is needed to see further higher levels of 39,000. Inability to break above 38,100 can drag the Nifty Bank index down to 35,000-34,000 again in the coming weeks.

Trading strategy: The stop-loss at 37,120 mentioned on the short positions recommended last week has got hit. Traders can wait for a rise and take fresh short positions at 37,900 and 38,100. Stop-loss can be kept at 38,450. Trail the stop-loss down to 37,600 as soon as the index falls to 37,200. Move the stop-loss further down 37,100 as soon as the index touches 36,700. Book profits at 36,400.

Global cues

The Dow Jones Industrial Average (34,818.27) was volatile last week. It surged to a high of 35,372.26 in the first half of the week. But thereafter it fell sharply, giving back all the gains and closed the week marginally lower by 0.12 per cent. Important supports are at 34,500-34,400 and then at 34,000. As long as the Dow stays above 34,000 the outlook is bullish to see 37,000-37,500 on the upside. The index will come under pressure only on a break below 34,000. Such a break can drag it down to 33,000-32,000 again.

Published on April 02, 2022
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