Indices Are Gearing Up For a Fresh Rally

Nifty 50, Sensex and Nifty Bank indices extended the fall initially last week. However, the supports that we had mentioned on the indices have held very well. The benchmark indices have bounced back in the second half of the week after testing their respective support. This has given some breather for the markets. It has also reduced the danger of seeing more fall. While Nifty and Sensex recovered all the loss to close the week marginally higher, Nifty Bank has closed slightly lower for the week.

There are resistances ahead which will need a close watch. A strong break and a follow-through rise above the upcoming resistances can bring back the earlier bullishness into the market. As such, the price action in the coming days is going to be very important as that could set the tone for market.

Among the sectors, the BSE Consumer Durables index outperformed last week. The index was up 2.58 per cent. This was followed by the BSE Realty and BSE IT indices, which were up 1.94 per cent and 1.80 per cent respectively. The BSE Power and BSE Metals indices were beaten down badly last week by 2.54 per cent and 2.38 per cent respectively.

Sell-off continues

The foreign portfolio investors (FPIs) continued to sell Indian equities for the fifth consecutive week. The equity segment saw an outflow of about $961 million last week. We reiterate that the FPI selling could be one factor that can reduce the momentum of rise in the Sensex and Nifty, and continue to keep them under pressure.

Nifty 50 (19,653.50)

Nifty broke below the key support level of 19,400 last week, but did not sustain. The index made a low of 19,333.60 and had risen back very well recovering all the loss. It has closed the week marginally up by 0.08 per cent at 19,653.50.

Short-term view: The bounce from the low of 19,333.60 is a positive. On the weekly chart, last week’s candle is looking bullish with a long wick. However, there is resistance around 19,780-19,800 and 19,880-19,900. Nifty has to surpass these hurdles to bring back the earlier bullishness. In that case, Nifty can rise to 20,300 in the short term.

Failure to breach the above-mentioned resistances and a fall back can take the Nifty down to 19,400-19,300 again. The 21-Week Moving average at 19,270 will be an important support to watch in the short term. A break below it can drag the Nifty down to 19,200-19,100 thereafter.

We prefer the Nifty to breach the 19,800-19,900 resistances and rise to 20,300 in the coming weeks.

Medium-term view: As mentioned last week, 19,000-20,400 will be the broad trading range for now. As long as the Nifty stays above 19,000, the bias is bullish to break above 20,400. Such a break can take the Nifty up to 21,500.

This bullish outlook will go wrong only if Nifty declines below 19,000. In that case, the index will come under pressure for a fall to 18,000. However, a strong trigger might be needed to break the support at 19,000 and drag the Nifty lower.

Nifty Bank (44,360.60)

The support at 43,750 held well last week. Nifty Bank index made a low of 43,857.50 and then had risen back very well. But unlike Nifty, the Nifty Bank index did not recover all of its loss. It has closed the week lower by 0.5 per cent at 44,360.60.

Short-term view: The bounce from the low 43,857 leaves the bias positive. But resistances are near 44,600 and 45,000. A strong rise above 45,000 will turn the outlook convincingly bullish to see 45,800 first and then 46,300-46,350 over the short term.

Failure to rise past 45,000 can take the Nifty Bank index down below 44,000 again. Key supports to watch are at 43,750 and 43,500. The index will come under pressure for an extended fall to 43,000 if it declines below 43,500.

We prefer the Nifty Bank index to sustain above 43,750, break above 45,000 and rise to 46,300 in the coming weeks.

Medium-term view: The outlook is bullish with strong support in the 43,500-43,000 region. Nifty Bank index can rise to 48,650-48,700 in the coming months. A break above 46,300 can boost the momentum from this rise.

The outlook will turn negative only if the index breaks below 43,000. Such a break can drag the Nifty Bank index down to 42,000-41,500. However, a break below 43,000 looks less probable at the moment as that would need a strong trigger.

Sensex (65,995.63)

The 64,800-64,700 support zone has held very well last week. Sensex made a low of 64,878.77 and has risen back well from there recovering all the loss. The index has closed the week at 65,995.63, up 0.25 per cent for the week.

Short-term view: The bias is turning positive. Immediate resistance is at 66,400. A break above it can take the Sensex up to 67,400-67,500 first. A further break above 67,500 will see an extended rise to 68,000-68,100 in the short term.

The region between 64,800 and 64,700 will continue to act as a strong support. The outlook will turn negative only if the Sensex declines below 68,700, which looks less likely as of now.

Medium-term view: The outlook is bullish with strong support around 64,500. We expect the Sensex to breach 68,000 eventually in the coming weeks and rise towards 70,000 over the medium term. A sustained fall below 64,500 is needed to turn the outlook bearish. Only in that case, a fall to 63,500-63,000 will come into the picture.

Dow Jones (33,407.58)

As expected, the Dow Jones Industrial Average extended the fall to test 32,800 last week. It made a low of 32,846.94 and had bounced back recovering most of the loss. The index has closed the week at 33,407.58, down 0.3 per cent.

Outlook: Despite the strong bounce, the picture has not turned positive yet. Cluster of resistances are at 33,900, 34,300 and 34,500. The region between 32,800-32,700 can continue to act as a strong support. However, a decisive rise past 34,500 is needed to turn convincingly bullish for a rise to 36,000.  As such, the price action in the coming weeks will need a close watch to get clarity on the next move on the Dow Jones.