Index Outlook: Nifty 50, Sensex: Resistances ahead

Nifty 50 and Sensex fell for the second consecutive week. We had expected the benchmark indices to bounce back after a short-lived fall. But on the contrary, the indices fell breaking below the supports that we had expected to hold, thereby proving our view wrong.

Although the Sensex and Nifty witnessed some recovery on Friday, it is important to see if it can sustain or not. Key resistances are ahead which have to be broken for the indices to bring back the bullish sentiment. Else, they might continue to remain vulnerable and fall more. As such broadly it is going to be a wait-and-watch situation this week. The price action will need a close watch to see what lies ahead for the benchmark indices.

Among the sectors, barring the BSE IT and BSE Health Care, up 2.97 and 0.38 per cent respectively, all others ended the week in red. The BSE Realty index, down 4.31 per cent, was beaten down the most.

FPI flows

After buying Indian equities for 14 consecutive weeks, the foreign portfolio investors (FPIs) turned net sellers last week. They sold $94.51 million in the equity segment. Although the quantum of selling was small, the FPI action in the coming weeks will be very important to watch. If the pace of selling increases, then that would be negative for the Sensex and Nifty.

Nifty 50 (19,517)

Contrary to our expectation to see a bounce from around 19,500, Nifty extended the fall breaking below it. The index made a low of 19,296.45 and managed to recover very well from there. Nifty has closed the week at 19,517, down 0.66 per cent.

Short-term view: The short-term picture is slightly mixed. The bounce last week has happened from an important support level of 19,300. If this bounce sustains, a further rise to 19,600-19,700 is possible this week. The level of 19,700 is a very important resistance. Nifty has to breach 19,700 decisively to strengthen the bullish case and negate the chances of falling back. Only in that case, the doors will open to revisit 20,000-levels again.

In case Nifty fails to break above 19,700 and declines below 19,300, an extended fall to 19,100-19,000 can be seen.

Overall, 19,300-19,700 will be the trading range for this week. A breakout on either side will determine whether the Nifty can rise to 20,000 or will fall to 19,000. We will have to wait and watch.

Graph Source: MetaStock

Medium-term view: The region around 19,000 is a very strong support. The medium-term picture will remain positive to see 20,200 as long as the Nifty stays above 19,000.

The outlook will turn negative only on a break below 19,000. In that case, a fall to 18,500-18,200 can be seen. But such a fall below 19,000 will need some strong trigger.

Sensex (65,721.25)

As feared, Sensex witnessed an extended fall up to 65,000 last week. The index made a low of 64,963.08 and bounced back recovering some of the losses. It has closed the week at 65,721.25, down 0.66 per cent.

Short-term view: If Sensex manages to sustain the bounce seen last Friday, a further rise to 66,150-66,250 can be seen. A decisive break above 66,250 will then take the Sensex up to 66,500-66,600 this week.

On the other hand, failure to breach 66,250 and a reversal thereafter can drag the Sensex down to 65,000 again.

Graph Source: MetaStock

Medium-term view: The region between 65,000 and 64,500 is a very strong support zone. As long as the Sensex trades above 64,500, the outlook will remain bullish.

66,700-66,800 is an intermediate resistance. A break above it can take the Sensex up to 67,800 again.

The medium-term view will turn bearish only if the Sensex declines below 64,500. But as mentioned last week, such a break looks less likely in the absence of any strong negative trigger.

Nifty Bank (44,879.50)

The Nifty Bank index broke the support at 45,250 and extended the fall well beyond our expected level of 44,700. The index made a low of 44,279.40 and then recovered from there to close at 44,879.50, down -1.29 per cent for the week.

Short-term view: Resistances are at 45,350 and 45,550. Nifty Bank index has to breach 45,550 to bring back the bullishness into the picture. Only in that case, the chances of a rise to 46,000-46,500 will come back into the picture.

Failure to rise past 45,550 can drag the index down to 44,400 – an important short-term support. Nifty Bank index will come under more pressure if it breaks below 44,400. In that case, a fall to 43,300 is possible.

Graph Source: MetaStock

Medium-term view: Although there is more room to fall, the broader trend continues to remain up. As mentioned last week, 44,000-43,000 region is a strong support. As long as the index stays above 43,000, a rise to 48,650 can be seen in the coming months.

Resistances to watch

19,700 on the Nifty

66,250 on the Sensex

45,550 on the Nifty Bank

Dow Jones (35,065.62)

The Dow Jones Industrial Average failed to breach the resistance at 35,600 for the second consecutive week. The index made a high of 35,679.13 on Tuesday and then fell sharply from there giving back all the gains. It has closed the week at 35,065.62, down 1.11 per cent.

Graph Source: MetaStock

Outlook: A very crucial support is near the current levels at 35,000 and 34,950. If the Dow Jones fails to bounce back from the 35,000-34,950 support zone, an extended fall to 34,700 and 34,500 is possible this week.

On the upside, 35,600 will continue to remain as a key resistance. A sustained break above 35,600 is needed to take the Dow up to 36,000.

In case the Dow breaks below 34,500 as well in the coming days, it can test 34,000 on the downside. From a big picture perspective, 34,000 is a very strong trend-line support. As such, the downside is likely to be limited up to 34,000. We expect the Dow Jones to remain above 34,000 and rise to 36,000 and higher levels, going forward. As such, the fall to 34,000, if seen, will be a very good opportunity to buy the Dow Jones from a long-term perspective.