Index Outlook: Nifty 50 and Sensex make a bullish breakout

Nifty 50 and Sensex have made a bullish breakout last week. That has brought the prolonged sideways consolidation in the indices to an end. Nifty Bank index has also risen well in line with our expectation last week. The outlook for the coming week is bullish for the benchmark indices. However, strong long-term resistances are coming up on the charts for the Nifty and Nifty Bank indices. In addition to this, the General Election results to be announced on June 4 is also going to be a very important event that can influence the market movement. So, as the benchmark indices move higher from here, we would prefer to remain very cautious rather than becoming overly bullish on the market movement.

Among the sectors, only the BSE Healthcare index closed in red last week. The index was down 0.6 per cent. The BSE Capital Goods index outperformed by surging 4.7 per cent last week. This was followed by the BSE PSU index, which was up 3.51 per cent.

FPI action

The foreign portfolio investors (FPIs) snapped their five-week selling spree. They were net buyers of Indian equities last week. The FPIs had pumped in about $743 million into the equity segment. Need to see if their quantum of purchase increases in the coming weeks. If that happens, then the Sensex and Nifty can scale more new highs, going forward.

Nifty 50 (22,957.10)

Nifty broke the 21,800-22,800 range on the upside last week. It touched a new high of 23,026.40 before closing the week at 22,957.10. The index was up 2 per cent for the week.

Short-term view: The breakout above 22,800 is a positive. The outlook for the coming week is bullish. The level of 22,800 will now act as a good support. Nifty can rise to 23,200-23,250 this week. If it manages to breach 23,250, then there can be an extended rise up to 23,600 or 23,750.

But if Nifty fails to breach 23,250 and reverses lower, then it can fall back to 22,800 and lower again. In that case, the price action around 22,800 will need a close watch to see if it is limiting the downside or not.

Chart Source: MetaStock

Medium-term view: The levels of 23,250 and 23,750 are very crucial resistances for the Nifty. As we have been mentioning for some time, we can expect the upside to be capped at 23,750. A strong reversal from around 23,750 can have the potential to drag the Nifty down to 21,800 again.

In case the sell-off intensifies and the Nifty breaks below 21,800 then there can be a steeper fall to 21,000 first. A further break below 21,000, if seen can take the Nifty down to 20,000-19,500.

From a long-term perspective, 21,000 and 20,000-19,500 are very strong supports. So, as the Nifty declines towards 21,000-20,000, we have to look at the market from the buy side again. Such a fall will be a very good long-term buying opportunity.

In case the Nifty breaks above 23,750 from here, then 24,100-24,300 can be seen on the upside.

Sensex (75,410.39)

Sensex has made a decisive break above the psychological 75,000-mark last week. The index made a new high of 75,636.50. It has closed the week at 75,410.39, up 1.9 per cent.

Short-term view: The outlook is bullish. Support is around 75,000. Sensex can rise to 76,100-76,200 – the next important resistance. Failure to breach 76,200 can drag the index down to 75,000-74,900 this week.

On the other hand, if the Sensex manages to breach 76,200, the upside can open up for a test of 77,800 and 78,000 in the short term.

Chart Source: MetaStock

Medium-term view: The region around 78,000 is an important resistance. Sensex has to breach this hurdle to move further up towards 80,000. A reversal from around 78,000 and a subsequent fall below 75,000 can trigger a sharp corrective fall towards 72,000 and even 70,000 in the coming months.

So as the Sensex moves up towards 78,000, the price action will need a close watch to see what is happening next.

Nifty Bank (48,971.54)

Nifty Bank index has risen well breaking above 48,000 in line with our expectation. The index made a high of 49,052.95. It has closed the week at 48,971.54, up 1.6 per cent.

Short-term view: The outlook is bullish. Support is now in the broad 48,300-47,900 region. Immediate resistance is at 49,300. The Nifty Bank index can break this resistance and rise to 50,300-50,500 this week. Failure to break above 50,500 can drag the index down to 49,300-49,000 again. But a break above 50,500 will see an extended rise to 51,300. The price action around 50,500 will need a close watch this week.

Chart Source: MetaStock

Medium-term view: The medium-term outlook continues to remain bullish. Nifty Bank index can rise to 52,000-53,000 in the coming months. A decisive rise above 50,500 can open the doors for that rally.

But if the Nifty Bank index remains below 50,500, then it can oscillate in a wide range of 46,000-50,500 for some time.

The levels of 46,000 and 44,500 are very strong supports. The outlook will continue to remain bullish as long as the index stays above these supports. As such, intermediate falls to 46,000 or 44,500 if seen can be considered as a good buying opportunity from a long-term perspective.

Resistances to watch

Nifty: 23,250 & 23,750

Sensex: 76,200 & 78,000

Nifty Bank: 50,500 & 51,300

Dow Jones (39,069.59)

Contrary to our expectation to see a rise to 40,200-40,300, the Dow Jones Industrial Average fell sharply last week. The index failed to get a strong follow-through rise above 40,000. It tumbled to a low of 39,020.29 before closing the week at 39,069.59, down 2.33 per cent.

Chart Source: MetaStock

Outlook: The near-term view is slightly unclear. Supports are at 39,000 and 38,500 – a test of which cannot be ruled out this week. A bounce from 38,500 and a subsequent rise past 39,000 can open the doors for a revisit of 40,000 levels. So, for now we prefer to look for a range of 38,500 to 40,000 for some time.

The Dow Jones will need a sustained rise above 40,000 to bring back the bullishness.