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    HomeBusinessIndex Outlook: Indices struggle to extend the rally

    Index Outlook: Indices struggle to extend the rally

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    The Indian benchmark indices opened the week on a positive note with a gap-up open. However, thereafter the indices remained broadly stable within a sideways range for the rest of the week. Sensex and Nifty 50 closed over a per cent each last week.

    The price action last week shows that the Sensex and Nifty 50 are not getting a strong follow-through buying. While the short-term picture on the chart is positive, the overall picture is still not very bullish. So, caution is needed as the indices are still vulnerable for a steep fall.

    Among the sectors, the BSE Realty and BSE IT indices outperformed by surging over 4 per cent each last week. The BSE Power index was the worst performer. It was down 4.48 per cent.

    The Reserve Bank of India’s (RBI) monetary policy outcome on Wednesday will be important to watch. That could be significant in setting the direction for the Indian benchmark indices.

    Nifty 50 (16,584.3)

    Nifty opened the week with a gap-up above 16,400 and sustained well above it all through the week. The index made a high of 16,793.85 on Friday and had come-off sharply from there. It closed the week at 16,584.3, up 1.42 per cent.

    Chart Source:  MetaStock

    Chart Source: MetaStock

    The week ahead: The price action last week shows that Nifty is struggling to breach 16,700 decisively. At the same time, the index is also getting good support at 16,400. This leaves the chances high for the index to oscillate in a range of 16,400-16,750 in the near term. A breakout on either side of 16,400 or 16,750 will then decide the next move.

    A decisive break above 16,750, can take the Nifty up to 17,000-17,050. The 100-Day Moving Average (DMA) resistance is at 17,054. If the Nifty manages to break further above 17,054, the upmove can strengthen.

    On the other hand, a break below 16,400 can bring the index under pressure. Nifty can then fall to 16,330 and 16,230-16,200 thereafter in the near term.

    Trading strategy: We prefer to stay out of the market for this week also as there is no clarity on the direction of move.

    Medium-term outlook: The chances of seeing 15,000 and 14,500-13,500 on the downside immediately has reduced. However, it has not been negated completely. It is just that the fall is getting delayed.

    The price action around 17,054 – the 100-DMA resistance, mentioned above, will need a close watch. If Nifty manages to rise past 17,054, a further rise to 17,900-18,000 can be seen. Thereafter, a fresh fall will bring back the danger of seeing 15,000 and lower levels into the picture.

    Only a decisive break and close above 18,000 will negate the bearish view of seeing 15,000 and lower levels on the downside.

    For the Nifty to fall to 15,000 immediately, it has to remain below 16,750 or 17,054 and then break below 16,200.

    Trading strategy: Positional traders can continue to hold the short positions taken at 17,171. Retain the stop-loss at 16,900. Move the stop-loss down to 16,100 as soon as the index touches 15,600 on the downside. Book profits at 15,100.

    Sensex (55,769.23)

    What to watch

    RBI monetary policy on Wednesday

    Resistance at 16,750 on Nifty

    Resistance at 56,450 on Sensex

    Barring the short-lived rise to 56,432.65 on Friday, Sensex broadly oscillated between 55,000 and 56,000 last week. It has closed at 55,769.23, up 1.61 per cent.

    Chart Source:  MetaStock

    Chart Source: MetaStock

    The week ahead: The immediate outlook is mixed. Resistances are at 56,450. Support is at 55,000. A breakout on either side of 56,450 or 55,000 will give clarity on the next move.

    A break above 56,450 can take the index up to 57,000 and 57,065 – the 100-DMA resistance. On the other hand, a fall below 55,000 can drag the Sensex down to 54,400 and 54,000 in the near term.

    Medium-term outlook: The bearish view of seeing a fall to 50,000 and 48,000 will get delayed now. The levels of 57,000 and 58,000 are important resistances to watch. A break above 58,000 will increase the chances to revisit 60,000-60,300 levels. Only a sustained rise past 60,500 will prove the bearish view of seeing 50,000-48,000 on the downside wrong. As long as Sensex trades below 60,000-60,500, the broader view will remain bearish.

    For the Sensex to see 50,000-48,000 from here itself, it has to hold below 57,000-58,000 and then break below 54,000.

    Nifty Bank (35,275.05)

    The Nifty Bank index snapped its two-week rally last week. It tested 36,000, but failed to see a sustained break above it. Nifty Bank index made a high of 36,083.7 on Friday and has come off from there. It has closed at 35,275.05, down 0.95 per cent for the week.

    Chart Source:  MetaStock

    Chart Source: MetaStock

    The immediate outlook is mixed. Resistance is at 36,600, which can be tested on a decisive break above 36,000. The price action around 36,600 will need a close watch to see if the index is turning down or will see an extended rally towards 37,000-37,500.

    Supports are at 34,880 and 34,560 – the 21 DMA. A break below 34,560 will bring the index under pressure for a steeper fall. Overall, it is a wait-and-watch situation

    Trading strategy: Stay out of the market

    Global cues

    The Dow Jones Industrial Average (32,899.7) was volatile last week. It oscillated up and down between 32,500 and 33,300 all through last week. The index closed at 32,899.7, down 0.94 per cent for the week.

    On the charts, 32,500 is a very crucial support. The Dow has to sustain above this support to keep the chances of seeing 34,000 and 34,800 levels alive in the coming weeks.

    A strong break below 32,500 will bring the index under pressure to revisit 31,000 and 30,000 levels on the downside.

    Published on June 04, 2022

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