Index Outlook: Sensex, Nifty 50 seem to lose steam

Sensex and Nifty 50 were stuck in a sideways range last week. But the Nifty Bank index surged to a new high and outperformed the Sensex and Nifty. On the charts, the near-term outlook for the Nifty and Sensex is slightly mixed. Supports are there for the indices which will still keep alive the chances of witnessing new highs from here. However, the price action over the last couple of weeks indicates that the upmove could be losing steam. The Nifty Bank index is also coming close to a very crucial resistance, which can be tested in a week or two.

So the struggle for the Nifty and Sensex to move up strongly coupled with the upcoming resistance in the Nifty Bank index increases the chance of a reversal any time. So as the Indian benchmark indices move higher from here we prefer to remain cautious for a correction rather than becoming overly bullish on the markets.

Among the sectors, the BSE Bankex and BSE IT outperformed last week. The indices were up 3.22 per cent and 1.88 per cent respectively. The BSE Auto and BSE Oil & Gas indices fell the most by 2.73 per cent and 2.53 per cent respectively.

FPIs’ buy

The foreign portfolio investors (FPIs) continued to buy the Indian equities for the second consecutive week. The equity segment witnessed a net inflow of $1.82 billion last week. A total of $3.23 billion has come in over the last two weeks. For the month of June, there has been a net inflow of about $1.46 billion. If the FPIs continue to buy, the downside in the Sensex and Nifty could be limited.

Nifty 50 (23,501.10)

After opening with a gap-up on Monday, Nifty 50 oscillated up and down within a range all through last week. The index was getting support around 23,400. But it could not get a strong follow-through rise above 23,660. Nifty has closed the week at 23,501.10, up 0.15 per cent for the week.

Short-term view: The immediate outlook is unclear. Support is in the 23,350-23,300 region. Immediate resistance is at 23,650. So, 23,300-23,650 can be the trading range for this week. A breakout on either side of this range will determine the next move.

A break above 23,650 will be bullish. Such a break can take the Nifty up to 23,800 initially and then to 24,100 eventually in the short term. A further rise beyond 24,100 might be difficult. As such, a reversal from 23,800 or 24,100 can trigger a corrective fall to 23,500 and even lower in the coming weeks.

In case the Nifty breaks below 23,300 from here itself, a fall to 23,000 and 22,850-22800 can be seen in the near term.

Graph Source: MetaStock

Medium-term view: The current uptrend is coming closer to crucial resistances poised at 23,650 and 24,150. The chances are high for the uptrend to pause at either of these two resistances. A reversal from 23,650 itself or from around 24,150 can trigger a corrective fall to 22,000 and even lower in the coming months. As the Nifty moves up from here, more caution is needed.

Nifty Bank (51,661.45)

Nifty Bank index broke the resistance at 50,600 and surged to a new high of 51,957. Failing to breach the psychological 52,000-mark, the index oscillated between 51,000 and 52,000 in the second half of the week. The Nifty Bank index has closed the week at 51,661.45, up 3.32 per cent.

Short-term view: The outlook is positive with supports at 51,200 and 50,800. As long as the Nifty Bank index stays above these supports, chances are high for it to breach 52,000. Such a break can take the index up to 52,700 – an important resistance, in a week or two. After this rise, chances are high to get a corrective fall.

If the Nifty Bank index remains below 52,000 and breaks below 50,800, then a fall to 50,000 can be seen first in the near term.

Graph Source: MetaStock

Medium-term view: The region between 52,700 and 53,000 is a strong resistance zone for the Nifty Bank index. We expect the current rally to halt around 53,000. A reversal thereafter will trigger a corrective fall to 50,000 or even 49,000-48,000 in the coming months. So, as the Nifty Bank index approaches 53,000, more caution is needed.

Sensex (77,209.90)

Sensex was stuck in between 76,800 and 77,850. The index oscillated up and down within this range all through the week. It fell to a low of 76,802 on Friday before closing at 77,209.90, up 0.28 per cent.

Short-term view: The outlook is unclear. Supports are at 76,800 and 76,650. Resistance is around 78,000. So, 76,650 to 78,000 can be the trading range for the week. A breakout on either side of this range will decide the next move.

A break above 78,000 can take the Sensex up to 78,850 and 79,000 in the short term. On the other hand, a break below 76,650 can drag the index down to 75,200-75,000.

As long as the Sensex stays above 76,650, the bias will remain positive to break 78,000 and see a rise to 78,850-79,000 in the short term.

Graph Source: MetaStock

Medium-term view: The uptrend is intact. Strong support is at 75,000-74,000. Sensex has room for a rise to 80,300 and even 82,100. The price action thereafter will need a very close watch. Chances are high for the Sensex to reverse lower either from 80,300 itself or after an extended rise to 82,100. That fall can take the Sensex down to 77,000 or even 75,000 in the coming months. Such a fall will be a very good buying opportunity from a long-term perspective.

So, as the Sensex goes into the 80,000-82,000 region, one has to look at the market from the sell side. That will be the time to become more cautious rather than being overly bullish.

Crucial levels

Nifty: 23,650 & 24,150

Sensex: 78,850 & 79,000

Nifty Bank: 52,700 & 53,000

Dow Jones (39,150.33)

The fall to 38,000 did not happen last week. Instead, the Dow Jones Industrial Average rose well breaking above 39,000. The index touched a high of 39,257.18 before closing the week at 39,150.33, up 1.45 per cent.

Graph Source: MetaStock

Outlook: Weekly chart indicates a range-bound move between 38,000 and 39,250 over the last four weeks. However, the daily chart is relatively more positive. Because the recent bounce has happened from around a key support level of 38,000. That leaves the bias positive.

Support is in the 38,800-38,750 region. As long as the Dow stays above this support zone, chances are high for it to breach 39,250. Such a break can take the Dow Jones higher to 40,100 in the short term.

The near-term outlook will turn negative only if the index declines below 38,750. In that case, the Dow can come under pressure for a fall to 38,000 again.