Index outlook. Nifty 50, Sensex: Nearing their top

The rally in Sensex and Nifty 50 continues. The benchmark indices made new highs last week. However, Friday’s sharp fall has caused a slight jitter in the markets. Both the indices were up over 0.9 per cent each last week.

Among the sectors, the BSE Bankex outperformed last week. The index was up 3.1 per cent. On the other hand, the BSE IT index was beaten down badly and was down 3.83 per cent.

Overall, the trend is still up. But the rally in the Sensex and Nifty could be coming close to their top. While there is room for the benchmark indices to move further up from here, it is now time to turn cautious rather than overly bullish. Strong long-term trendline resistance is coming up for both the Sensex and Nifty that can halt the current rally and trigger a correction.

FPI flows

The foreign portfolio investors (FPIs) continue to pour money into Indian equities. The equity segment saw an inflow of $1.6 billion last week. For the first time since 2020, there has been a net inflow of over $1 billion each for five consecutive weeks. Continuing foreign money flows will aid in limiting the downside for the Sensex and Nifty.

Nifty 50 (19,745)

The break above 19,650 and the rise to 19,800 happened last week in line with our expectation. Indeed, Nifty surged well beyond 19,800 to make a high of 19,991.85 on Thursday. However, on Friday, the index fell giving back some of the gains made during the week. Nifty has closed at 19,745, up 0.92 per cent for the week.

Short-term view: The shot-term outlook is bullish. Immediate support for Nifty is at 19,670. Below that 19,460 is the next important support. A fall below 19,460 is less likely. Nifty can bounce back either from 19,670 itself or from 19,460. That leg of upmove can take the Nifty up to 20,000-20,100 by this week or next.

The near-term outlook will turn negative if Nifty declines below 19,460. In that case, the index can fall to 19,400-19,350. The 21-Day Moving Average (MA) support is near 19,350. So, a fall below 19,350 is less likely as of now. As long as the Nifty trades above the 21-Day MA support, the short-term outlook will remain bullish.

Graph Source: MetaStock

Medium-term view: The recent rally is coming closer to a top. Nifty has a crucial resistance around 20,200. A strong long-term trendline is poised around this level.

Considering the strong and continuous rally since March, the chances are high for the current rally to halt around 20,200. A corrective fall to 19,500 and even 19,000 is possible thereafter. The region between 19,000 and 18,800 is a strong support zone. So, at the moment, we expect the correction to be limited to 19,000-18,800. We will have to assess the strength of the reversal once the actual correction begins.

So, as the Nifty crosses above the key 20,000-mark, it is better to turn cautious rather than becoming overly bullish.

Sensex (66,684.26)

Sensex surged breaking above 67,000 during the week. The index made a new high of 67,619.17 on Thursday. However, it lost momentum on Friday and fell sharply giving back most of the gains. Sensex has closed at 66,684.26, up 0.94 per cent for the week.

Short-term view: Immediate support is at 66,470. A break below it can drag the Sensex down to 66,000-65,900 this week. However, if the index manages to sustain above 66,470 and breaks above 67,000 again, then a rise to 68,000-68,300 is possible in the near term. It is a wait-and-watch situation for the Sensex as of now.

Graph Source: MetaStock

Medium-term view: Unlike Nifty, which has some room to test its long-term resistance, Sensex has already tested that hurdle. The long-term trendline resistance for the index is coming around 67,700 and that has been tested last week. So, it looks a little mixed whether the upmove in the Sensex is over or not. If the Sensex moves up on the back of the rise in Nifty and Nifty Bank, then 68,300 can be seen. Thereafter, a correction towards 65,000-64,500 can be seen.

Nifty Bank (46,075.20)

The rise to 46,000 has happened slightly quicker than expected. Nifty Bank index surged to a high of 46,369.50 on Friday and has come-off from there giving back some of the gains. The index has closed at 46,075.20, up 2.8 per cent for the week.

Short-term view: The break and strong close above 45,200 last week is very positive. The outlook is bullish. Support is at 45,400. Nifty Bank index can rise to 47,100 this week. A strong break above 47,100 will boost the bullish momentum. That will open the doors to target 47,500-47,700 in the coming weeks.

In case, the Nifty Bank index breaks below 45,400, though less likely, it can fall to 44,700 – an important short-term support.

Graph Source: MetaStock

Medium-term view: The region around 47,500-47,700 is a very crucial resistance zone. The price action will need a close watch there. If the Nifty Bank index manages to breach 47,700, then we can see an extended rise to 48,650.

On the other hand, a reversal from the 47,500-47,700 region can drag the Nifty Bank index down to 46,000 and even lower.

Resistance to watch

20,200 on the Nifty

68,300 on the Sensex

47,700 on the Nifty Bank

Dow Jones (35,227.69)

As expected, the Dow Jones Industrial Average rose breaking its 33,600-34,600 range on the upside. That break is taking the index up to 35,500 in line with our expectation. The index made a high of 35,372.77 on Thursday and has come-off slightly from there. It has closed at 35,227.69, up 2.38 per cent.

Graph Source: MetaStock

Outlook: The broader outlook is bullish. However, for the short term, there is not much room left on the upside from here. Immediate resistance is at 35,600. Above that, 35,900-36,000 is the next strong resistance that can cap the upside for now. We expect the Dow Jones to see a reversal either from 35,600 itself or from around 36,000.

That corrective move can drag the Dow Jones lower to 35,000 and 34,500 in the coming weeks.

The US Federal Reserve meeting outcome is due on Wednesday. A 25-basis point rate hike is expected from the Fed this week. If the central bank reiterates for more hikes going forward, then that could be a possible trigger for getting a correction in equities.

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