Index Outlook: Indices build up steam

The Budget lifted the optimism in the market and took the Nifty and the Sensex above their key resistance to new calendar highs. Global central banks largely maintained status quo in their monetary policies with the US Federal Reserve, Bank of Japan and Bank of England keeping rates unchanged. The People's Bank of China however unexpectedly increased interest rates on open market operation, reverse repurchase agreements, indicating a tightening bias in its monetary policy.

This week, the Index of Industrial Production (IIP) data and the Reserve Bank of India’s policy meeting will set the direction for the domestic markets.

Nifty 50 (8,740.9)

Extending the uptrend that commenced in late December 2016, the Nifty 50 index advanced 1.2 per cent with above average volume in last week.

This week: The index prolonged its short-term uptrend with an excellent volume and managed to close above the key resistance level of 8,700, which has turned into a support now. It hovers well above its 50 and 200-day moving averages. Last two sessions, the index was volatile but was able to deal with it to close above 8,700 levels, in spite of fall in volume. Moreover, the daily relative strength index features in the overbought territory, implying the possibility of a minor corrective decline. This kind of volatility can continue in the coming week as well. Traders with a short-term perspective should tread with caution and stay alert while maintaining a stop-loss at 8,500. A slump below the immediate support level of 8,700 can witness a pull back decline in the index to 8,650 and then to 8,550 levels which can be used to accumulate long positions.

The weekly relative strength index has entered the bullish zone from the neutral region. Further, the weekly moving average convergence divergence indicator has also entered the positive territory backing the uptrend. Buying interest continues to be in place as the daily and weekly price rate of change indicators feature in the positive territory.

The index now faces a key resistance at 8,800. Strong rally above this level can take the index higher to 8,900 and 8,970 levels in the medium term. Having said that, a decisive fall below the key support level of 8,550 can threaten the short-term uptrend in the index and make it decline to 8,450 levels.

As long as the index trades above the significant support level of 8,300, the short-term uptrend will remain in place. Conclusive fall below 8,300 can drag the index down to 8,200 and then to 8,000.

Medium-term trend: Strong break of the key resistance at 8,500 has changed the medium-term trend upwards. The up-move is strengthening as the weekly indicators enter the bullish territory. Investors with a medium-term perspective should ignore the near-term market choppiness as well as market noise and stay invested with a stop-loss at 8,300.

We reaffirm that the index can move upward to 8,900, 8,970 and 9,120 in the medium term. Strong plunge below 8,300 can pull the index down to the next support level of 8,200 and then to 8,000 in the medium term. Subsequent vital supports are at 7,900 and 7,800 levels.

Sensex (28,240.5)

Last week, the Sensex continued its upward journey by gaining 358 points or 1.3 per cent, breaching its next barrier at 28,000. It trades well above its 50 as well as 200-day moving averages.

The index now tests resistance at 28,270. A decisive breach of this level can take it northwards to 28,500. Further rally beyond 28,500 can push the index 28,750 and then to 29,000 in the ensuing weeks.

Significant supports to watch are pegged at 28,000, 27,500 and 27,300 levels. Only a strong plunge below the key support level of 27,000 can alter the uptrend and pull the index down to 26,700 and 26,500 in the medium term.

Bank Nifty (20,196.8)

The Bank Nifty rose 488 points or 2.5 per cent, continuing its short-term uptrend backed by strong rally in the PSU banking stocks. The index can prolong its rally and encounter resistance at 20,500 in the short term.

Short-term outlook is bullish for the index.

The daily indicators feature in the bullish zone and the weekly indicators have entered the bullish zone supporting the uptrend.

Traders with a short-term perspective can hold the long positions with a revised stop-loss at 19,700.

An emphatic breakthrough of 20,500 can strengthen the up-trend and take the index northwards to 20,700 and then to 20,900 in the medium term.

But a decisive plunge below the key support level of 19,000 will alter the short-term uptrend and drag the index lower to 18,700 and then to 18,500 in the medium term.

Immediate supports are placed at 19,700 and 19,500.

Global cues

Strong rally of 186 points or 1 per cent in the Dow Jones Industrial Average on Friday has failed to take the index higher. The index ended marginally on a negative note for the week.

A decline below the key base level of 19,800 can pull the index down to 19,700 and then to 19,500 in the medium term.

However, strong rally beyond 20,100 can take the index higher to 20,200 or 20,300. This could however be short lived.