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Following a transitory initial decline, the domestic equity benchmark indices — the Sensex and the Nifty — did a volte-face and surged on the back of positive global cues as the US and China agreed on an initial trade deal. However, investors need to exercise caution in the ensuing trading sessions. Macro data was not comforting, with a drop in IIP (Index of Industrial Production) and a spike in CPI (Consumer Price Index).
The US Federal Reserve kept interest rates unchanged and indicated no changes in rates through 2020. Investors will focus on the China trade deal and the global crude oil price movement in the ensuing week.
Nifty 50 (12,086.7)
Following an initial decline, the index recorded an intra-week low of 11,832 and began to trend upwards. The Nifty surged 165 points, or 1.4 per cent, last week. However, the index continues to test a significant resistance in the band between 12,000 and 12,100. But it surpassed the 21-day moving average and closed above it on Friday.
The weakness can be exhibited if the index fails to conclusively break above the current resistance band. The daily relative strength index (RSI) is on the brink of re-entering the bullish zone from the neutral region; this has alleviated the negative divergence previously displayed.
The weekly RSI has bounced up from the 60 mark, and features in the bullish zone.
After briefly hovering in the negative territory, the daily price rate of change indicator has entered the positive territory, while its weekly counterpart continues to hover in the positive territory.
The inability to maintain the current bullish momentum can pull the index down to test the immediate support at 11,900.
A further decline can pull the index lower to 11,800 in the near future. We restate that only a decisive fall below this level will confirm the trend-reversal and drag it lower to 11,700.
A further plunge below 11,700 could intensify the selling pressure.
The next vital supports are at 11,550 and 11,440 levels.
To mitigate the short-term uptrend that has been in place since early October, the index needs to conclusively break below the trend-deciding level of 11,500.
The supports at 11,350 and 11,200 will then come to play.
Conversely, a strong break above 12,100 will strengthen the uptrend and take the index higher to 12,200 initially.
A further rally beyond this level will pave the way for 12,400 levels in the short term.
Medium-term trend: Currently, the Nifty tests the significant medium-term resistance in the 12,000-12,100 band with a positive bias. The medium-term uptrend that has been in place since the September low of 10,670 remains intact.
A strong break above 12,100 can accelerate the index higher to 12,300 and 12,500 over the medium term. Nevertheless, a downward- reversal from the current resistance zone can drag the index down to 11,800 levels.
We reaffirm that a decline below 11,500 will start threatening the uptrend.
A further decline below this level can test the key trend-deciding level at 11,200 in the medium term. The subsequent supports are pegged at 11,000, 10,800 and 10,700 levels.
Investors with a medium-term perception can remain invested with a stop-loss at 11,200.
Sensex (41,009.7)
Last week, the Sensex surged 564 points, or 1.4 per cent, and surpassed its 21-day moving average. But the index tests resistance at 41,000.
A solid break above 41,000 can reinforce the uptrend and push the index northwards to 41,500 and then to 41,700 levels over the medium term.
Having said that, if the index fails to sustain the bullish momentum and reverses down, it may find support at 40,500. A further decline can pull the index lower to 40,000.
A broad sideways movement is possible in that scenario.
Key supports below 40,000 are at 39,750 and 39,500.
The medium-term uptrend that has been in place since late September will be intact as long as the index trades above 38,500 levels.
Nifty Bank (32,014.2)
The Nifty Bank index took support at 31,000 and did a volte-face last week, gaining 672 points, or 2.15 per cent. But the index now tests a resistance at 32,000 levels. It trades well above the 21- and 50-day moving averages. The daily RSI has re-entered the bullish neutral region and the weekly RSI features in the bullish zone. Besides, the daily price rate of change indicator features in the positive terrain.
We reiterate that a clear breakthrough of 32,000 will underpin the bullish momentum and take the index higher to 32,500 and then to 33,000 over the short-to-medium term.
That said, an inability to decisively move beyond the 32,000 mark will keep the index oscillating between 31,000 and 32,000 for a while. The immediate support is at 31,500. An emphatic fall below 31,000 can pull the index down to 30,500 and then to 30,000 over the short term.
Only a strong slump below the 30,000 mark will start threatening the short-term uptrend.
Traders with a short-term perspective can initiate fresh long positions on a strong rally above 32,000 levels with a fixed stop-loss.
Global cues
The Dow Jones Industrial Average continued to remain volatile, and marginally gained last week to close at 28,135.38, adding 120 points, or 0.4 per cent. The index has been in a sideways movement over the past month in the band between 27,500 and 28,100.
A strong break above the immediate resistance level of 28,100 can push the index higher to 28,250 and then to 28,500 levels in the short term.
The supports to note are at 27,750 and 27,500 levels.
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