Index Outlook: Can resistances cap the upside in indices?

Global equities got a breather last week after having knocked down badly in the week earlier. Most of the major global indices bounced back 2 per each. The Dow Jones Industrial Average outperformed by rising over 5 per cent. Will this bounce-back move sustain? Or is it just a correction within the broader downtrend. We will have to wait and watch.

In the domestic market, the benchmark indices, Sensex and Nifty 50 rose 2.6 per cent each. The key resistances that we had mentioned last week is being tested now. Among the sectors, barring the BSE Metals index (down 4 per cent), all other indices closed in green. The BSE Auto index outperformed others by surging 7 per cent last week.

Foreign Portfolio Investors (FPIs) continue to sell Indian equities. They sold $1.84 billion last week. In June, they have pulled out $5.88 billion from Indian equities.

Nifty 50 (15,699.25)

Nifty managed to hold above 15,200 last week. After trading in a narrow range of 15,200-15,400 initially, it rose in the second half of the week. Nifty made a high of 15,749.25 on Friday and has closed the week 2.65 per cent up at 15,699.25.

Chart Source: MetaStock

The week ahead: The price action over the last two weeks indicates a sideways range of 15,180-15,900. Within this range, an immediate resistance is at 15,750. Above 15,900, the next strong resistance is at 16,180. So, 15,750, 15,900 and 16,180 are the important resistances to watch. If Nifty breaks above 15,750, it can see a rise to 15,900 and even 16,180 this week. A further rise beyond 16,180 might be difficult. We expect the upside to be capped at 16,180 for now and the Nifty to reverse lower again from here targeting 15,750 and lower levels.

If Nifty sustains below 15,750 or 15.900 itself, it can fall back to the supports are 15,400 and 15,200. In that case, it will remain vulnerable to break 15,200 and see a steeper fall.

Trading strategy: Traders can hold the short positions taken last week at 15,293 and 15,680. The average entry level is 15,486. We suggest bringing down the stop-loss to 15,810 as there is a possibility of a rise to 15,900 and 16,180. Trail the stop-loss down to 15,120 as soon as the index falls to 14,920. Move the stop-loss further down to 14,820 when the index touches 14,740 on the downside. Book profits at 14,640.

Medium-term outlook: The medium-term bearish outlook is still intact. A sustained break below 15,200 will open doors for the fall to 14,500-14,400 and 14,200 that was mentioned last week. We reiterate that the fall to 14,200 can be considered a good starting point for long-term investments. As mentioned last week, 30 per cent of the intended quantity for long term can be bought in the 14,500-14,200 region. We expect the current fall to find a bottom anywhere in the broad 14,500-13,500 region.

Trading strategy: Positional traders can continue to hold the short positions taken at 17,171. Retain the stop-loss at 15,850. Move the stop-loss further down to 15,350 as soon as the index touches 15,150. Book profits at 15,100.

Sensex (52,727.98)    

The corrective rise to 52,800 has happened on the Sensex contrary to our expectation to see a test of 50,000 on the downside. Sensex had held well above 51,000 all through the week and rose to a high of 52,909.87 on Friday. It has closed the week at 52,727.98, up 2.66 per cent.

Chart Source: MetaStock

The week ahead: Immediate resistance is in the 53,000-53,200 region. A break above it can take the Sensex up towards 54,000 this week. A further rise past 54,000 might be difficult and will need a strong trigger. As such, we can expect the Sensex to turn down either immediately from 53,000-53,200 itself or after an extended rise to 54,000. That reversal can take the index down to 52,000 and 51,000 again.

Medium-term outlook: The broad region between 54,000 and 55,000 will be a strong resistance zone now. As long as the Sensex trades below 55,000, the broader view will continue to remain bearish. As such, we retain our view of seeing 49,000-48,000 on the downside. We reiterate that the fall to 49,000-48,000 will be a good time to buy from a long-term perspective.

What to watch

Resistance at 15,900-16,180 on Nifty

Resistance at 53,000-53,200 on Sensex

Resistance at 34,200 on Nifty Bank

Nifty Bank (33,627.45)

The resistance at 33,500 failed to cap the upside last week contrary to our expectation. The Nifty Bank index rose to make a high of 33,721.9 on Friday. It has closed the week at 33,627.45, up 2.6 per cent.

Chart Source: MetaStock

Broadly, 32,300-33,775 has been the range over the last couple of weeks. Important resistance to watch above 33,775 are at 34,200 and 34,800. We expect the upside to be capped at 33,775 itself or at 34,200. An extended rise to 34,800 looks less probable.

Support is at 32,300. A break below it can drag the Nifty Bank index down to 31,835 – the crucial long-term support. As mentioned last week, the price action around 31,835 will need a close watch as a break below it will be very bearish to see 30,000-29,500 on the downside.

Trading strategy: Traders can go short on a rise at 33,900 and 34,100. Stop-loss can be placed at 34,950. Trail the stop-loss down to 33,700 as soon as the index falls to 33,100. Move the stop-loss further down to 32,900 when the index touches 32,300 on the downside. Book profits at 32,100.

Global cues

Dow Jones Industrial Average (31,500.68) surged 5.4 per cent last week. The danger of seeing a fall to 29,300 and 28,950 mentioned last week has eased. Immediate support will now be in the 31,000-30,800 region. As long as the Dow stays above this support zone, the short-term view will remain positive. As such, a further rise to 32,000-32,500 can be seen this week if the current momentum sustains. The price action thereafter will need a close watch to see if the Dow is reversing lower again to bring back the pressure or will it see an extended rally beyond 32,500.