Sector View. Nifty IT index can slide lower

The Nifty IT index experienced a sharp fall of 2.8 per cent on Friday over proposed H1B visa curbs in the US. The fall was led by stocks of TCS (2.2 per cent) and Infosys (2.5 per cent), which have more weightage in the IT index. The index closed at 10,110.4 last week, underperforming the broader market indices — the Nifty and Sensex.

Through the index managed to move above the key long-term resistance level of 10,400 in the initial part of the week, it failed to sustain the rally. This reinforces 10,400 as a key long-term resistance level to watch out for.

Since registering a new high at 12,908 in March 2015, the Nifty IT index has been on an intermediate-term downtrend, forming lower peaks and troughs. While trending down, the index decisively tumbled below the moving average compression (21-, 50- and 200-day moving averages) at around 11,080 in August 2016. Nevertheless, it found support in the band between 9,300 and 9,400 in November and changed direction. Since then, the index had been on a short-term uptrend until it encountered a key resistance at around 10,400 last week. The Friday’s fall has conclusively breached the short-term up trend-line as well as the immediate support at 10,200 implying that the rally is loosing momentum.

Further slump below the next support level of 10,000 will start threatening the uptrend and pulling the index down to 9,800 and then to 9,600 in the short to medium term. Also, there is a possibility of retracting the entire short-term uptrend and testing the support band between 9,300 and 9,400. Subsequent support below this band is at 9,000, which is a significant long-term base that also coincides with 50 per cent fibonacci retracement level of the prior uptrend. Supports below 9,000 are at 8,800 and 8,400 levels. On the upside, a conclusive breakthrough of the key long-term resistance level of 10,400 is required to reinforce the bullish momentum and take the index higher to 10,800 levels.

To alter the intermediate-term downtrend, the index needs to strongly rally beyond the next key resistance level of 11,200. Then, the index can trend upwards to 11,400 and then to 11,600 in the long run.

Short-term uptrend that has been in place since mid-November 2016 is under threat now. Last week, the index breached the immediate support at 10,200 as well as the 21-day moving average. With key stocks such as TCS and Infosys reporting their third-quarter earnings in the coming week, the index could remain volatile.

Traders with short-term perspective should tread with caution in the coming week. Strong plunge below 10,000 can pull the Nifty IT index down to 9,800 and 9,600 in the short term. However, conclusive breakthrough of 9,400 can drag the index down to 9,200 and 9,000 levels. On the other hand, the index has immediate resistance in the range between 10,200 and 10,250. Rally beyond this range can take it higher to 10,400. An emphatic break-out of 10,400 is needed to strengthen the up move for a rally to 10,600 and 10,800 levels.

The Bank Nifty inched 86 points or 0.5 per cent amid choppiness in the previous week. After an initial decline, the index managed to close above the key resistance level of 18,000, once again indicating optimism. Moreover, the index is attempting to decisively breach its 200-day moving average, which is poised at around 18,200.

Traders with a short-term perspective can consider retaining their long positions with a fixed stop-loss maintained at 17,950 levels. Extension of the up-move can take the index up to the next resistance levels at 18,500 and 18,700 in the short term.

Conclusive breach of 18,700 can take the index northwards to 19,000 levels. If the index fails to move beyond 18,500, it can move sideways in the band between 18,000 and 18,500 for a while. Supports below 18,000 are at 17,650 and 17,500 levels.