Index Outlook: Indices Not Out Of The Woods Yet

Nifty 50 and Sensex witnessed good recovery last week. That has given some relief for the indices after getting beaten down badly for three consecutive weeks. However, it is important to see if the benchmark indices are getting a strong follow-through rise from here or not. Also, key resistances are ahead which will have to be broken in order to completely negate the danger of falling back again.

 The Nifty Bank index, on the other hand, remained relatively stable and has closed marginally higher. This index is also coming down along with the Sensex and Nifty 50 but at a slow pace.

All sectoral indices ended in green last week. The BSE Metal index surged 7.93 per cent and outperformed others. The BSE PSU, BSE Power and the BSE Capital Goods indices were all up over 6 per cent each last week.

Selling continues

The Foreign Portfolio Investors continue to sell Indian equities. They sold about $2.83 billion last week. That takes the total outflow so far this year to $15.85 billion.

Nifty 50 (22,552,50)

Video Credit: Gurumurthy K

Nifty fell below 22,000 and was vulnerable to more fall. But the index witnessed a strong recovery from the low of 21,964.60, and continued to move up all through the week. Nifty touched a high of 22,633.80 on Friday before closing the week at 22,552.50, up 1.93 per cent.

Short-term view: Nifty has a crucial resistance at 22,650. If it manages to breach this hurdle, a rise to 23,000 and even 23,200 can be seen in a week or two. But failure to rise above 22,650 can drag the index down to 22,300-22,250, initially.

A break below 22,250 can then drag it down to 22,000 and 21,900 again. Such a fall will also keep the danger alive of the index falling to 21,700-21,600 in the short term.

So the price action in the initial part of the week will be very important to see. A strong follow-through rise from here immediately will be positive. We will have to wait and watch.

Medium-term view: As mentioned last week, 21,700 and 21,500 are crucial supports to watch. Nifty has to sustain above these supports to keep alive the hopes of a reversal. Crucial resistances are at 23,000 and 23,400-23,500. A decisive break above 23,500 is needed to confirm a trend reversal. Only then the rise to 25,000 and higher levels will come back into the picture.

In case, the Nifty declines below 21,500, it can fall to 21,000 first. A further break below 21,000 will see a steep fall to 19,600. For now, we prefer the Nifty to sustain above 21,500. May be a sideways consolidation between 21,500 and 23,500 could also be a possibility before the expected bullish reversal happens.

Nifty Bank (48,497.50)

Nifty Bank index broke below 48,000 initially last week but did not sustain. The index touched a low of 47,841.30 and then had risen again very well. It hit a high of 48,839.10 and had come off slightly from there to close the week at 48,497.50, up 0.32 per cent.

Short-term view: The support at 47,700 is holding very well. The price on the weekly candles indicates lack of strong sellers to break this support and drag it lower. So, as long as the index stays above 47,700, the bias is positive. There are good chances to see a rise to 50,000-50,200 in the short term. Intermediate resistance is around 49,000. A break above it can trigger that rise.

The index will come under pressure only if it breaks below 47,700. If that happens, a fall to 47,000 and 46,600 can be seen.

Medium-term view: The big picture remains the same. The level of 46,600 is a crucial and strong support. We expect it to limit the downside if a fall below 47,700 is seen.  The broader bias is positive. A decisive break above the 50,000-50,200 resistance zone can take the Nifty Bank index up to 53,000-54,000 in the coming months. That will also keep intact our overall bullish view of seeing 58,000 levels this year.

Sensex (74,332.58)

Sensex fell to a low of 72,633.54 initially and then had risen back well recovering all the loss. The index touched a high of 74,586.43 before closing the week at 74,332.58, up 1.55 per cent.

Short-term view: A crucial support is at 72,600 which is holding very well for the Sensex now. Resistance is in the 75,100-75,200 region which can be tested this week. If the Sensex manages to breach 75,200, there can be an extended rise to 76,300-76,400 in the short term.

On the other hand, if Sensex fails to breach 75,200 and reverses lower, it can fall back to 73,000 and 72,600 again. In that case, a sideways range of 72,600 and 75,200 is a possibility for some time.

The index will come under more selling pressure if it breaks below 72,600. If that happens, there can be a steep fall to 71,000-70,700.

Medium-term view:  As mentioned last week, the 71,000-70,700 will be the crucial support zone. A bounce from there can take the Sensex up to 75,000-76,000 again. It will also keep the upside open to target 80,000 and higher levels eventually this year.

The bullish view will completely get negated only if the Sensex declines below 70,700. In that case, the index can tumble to 66,000.

Dow Jones (42,801.72)

The Dow Jones Industrial Average declined sharply in the first half of the week and then remained stable and range-bound thereafter. As expected, the index has broken below 43,000. The index touched a low of 42,175.62 on Friday and bounced back to close the week at 42,801.82. The Dow Jones was down 2.37 per cent for the week.

Outlook: Dow Jones can fall to 42,000 or even 41,800-41,700. There are cluster of supports in the 42,000-41,600 region. So, we will have to wait and watch if the index is sustaining above this support zone and bouncing back or not. A strong bounce from this support zone and a subsequent rise past 43,000 will be bullish to see 44,000-44,500 again. In that case, the broad 41,600-45,100 range will remain intact.

In case the Dow breaks below 41,600, a steep fall to 40,000 can be seen. That in turn will confirm a double-top pattern on the chart. It will then leave the danger of the index seeing 38,000 on the downside in the coming months.