Index Outlook: Decisive rally above 15,800 levels can bring back bulls

Following an initial up-move, bellwether indices Sensex and Nifty 50 witnessed selling pressure and retreated to finish the week in red. The indices continue to remain range-bound, therefore investors should tread with caution in the coming week. The first quarter earnings announcement of bluechip stocks kick-started recently will keep the indices choppy.

Besides, the rupee movement against the dollar and crude oil price need to be watched.

On the global front, the focus will be on the 10-year Treasury yield, Producer Price Index and US retail sales for June.

Nifty 50 (15,689.8)

In the midst of volatility, the Nifty 50 has slipped 32 points or 0.2 per cent in the past week. After an initial rally, the index failed to sustain at higher levels and retreated. We restate that the index continues to test the resistance at 15,800 levels.

The week ahead : The index has been in a short-term sideways movement, mainly in the band between 15,600 and 15,850 levels since early June this year. On Friday, the index tested the near-term support at 15,635 and managed to close above this level. Support thereafter is at 15,500 that could provide base in the near term if the index extends the current corrective decline. An emphatic plunge below the crucial support level of 15,500 will start weakening the uptrend that began from the April low of 14,151. Such a fall can extend the corrective down-move and test supports at 15,300 and 15,000 levels in the ensuing weeks.

As long as the index trades above the base level of 14,800, the uptrend that has been in place since the late April low at 14,151 will be intact. A strong fall below 14,800 will start threatening the uptrend and drag the index lower to the next supports at 14,500 and then at 14,200. Subsequent key supports are placed at 14,000 and in the 13,500-13,600 band.

On the upside, a decisive rally above 15,800 levels can bring back bullish momentum and take the index northwards to test the key resistance at 16,000 in the near term. A further rally beyond this level can take it higher to 16,200 initially. An up-move to 16,500 levels is likely in case the index sustains above 16,000 levels.

Medium-term outlook : Over the past two week the index is range-bound and there is no major change in the medium-term trend. Since the December 2020 low of 13,131, the index has been in a medium to intermediate-term uptrend. Within this uptrend, it has been in a sideways movement over the past one month. We reaffirm that the medium-term uptrend will continue to be intact as long as the index trades above the dynamic support of 14,000. Significant medium-term supports are pegged at 15,500 and 15,000 that could provide cushion if the corrective decline continues. The index needs to decisively decline below 14,000 to alter the medium term uptrend in which case it can pull it downwards to the 13,500-13,600 band and then to 13,000 levels over the medium term.

On the other hand, if the index breaks above the key hurdle at 16,000, it will underpin the uptrend and pave the way for an up-move to 16,500 levels in the medium term.

Sensex (52,386.19)

Last week, the Sensex tested the key resistance at 53,000 and declined in the fag end of the week to end in negative territory, it is down by 98 points or 0.19 per cent. The index has been in a sideways movement broadly in the band between 51,700 and 53,000 levels over the past month. The index now tests an immediate support at around 52,500 and is marginally away from crucial base at 52,000 levels. If the index decisively falls below 52,000 levels, it will start weakening the short-term uptrend and drag the index down to the next base level of 51,400 and then to 51,000 levels in the short term.

We restate that as long as the index trades above the 50,000-mark, the short to medium-term uptrend that started from the April low at around 47,204 will remain intact. An emphatic decline below 50,000 will start threatening the uptrend and pull the index down to the subsequent supports at 49,000 and then to the 47,700-48,000 band.

Conversely, the index continues to test the psychological resistance at 53,000 on the upside over the past three weeks. A conclusive breakthrough of this level will reinforce the bullish momentum and take the index higher to 53,500 and then to 54,000 levels in the coming weeks. Investors with a long-term horizon can stay invested with a long-term stop-loss at 41,000.

Nifty Bank (35,071.9)

After a short-term corrective decline, the Nifty Bank found support at 30,405 in April this year and it has been in a short-term uptrend since then. The index now faces a key resistance in the band between 35,500 and 35,650. A conclusive break above this level can pave the way for the resumed up-move to 36,000 and then to 36,500 over the short term. A further breakthrough of 36,500 will take the index higher to 37,000 and then to 38,000 over the medium term. But failure to move beyond 37,000 can keep the index in a consolidation phase, and caught in the wide band between 36,000 and 37,000. Traders can go long on a strong rally above 36,500 levels with a fixed stop-loss.

On the downside, investors need to watch for the key medium-term support level of 34,000. A break of this support will alter the on-going short-term uptrend and pull the index down to the next support of 33,000 and then to 32,000. A strong plunge below 32,000 can aggravate selling pressure and pull the index lower to 31,000 and even to 30,000 over the medium-term horizon. Immediate supports are placed at 35,250 and 34,700 levels.