Index outlook: Can indices record new highs?

Taking positive cues from the global markets, the domestic benchmark indices started the previous week on a bullish note.

The consumer price index in August increased 3.36 per cent YoY, as against 2.4 per cent increase in July, according to data from the Central Statistics Office. Inflation has been inching up since recording a low of 1.53 per cent in June.

Going forward, investors need to closely track US markets which are at record highs. The geopolitical tension in North Korea too warrants caution.

Nifty 50 (10,085.4) The Nifty 50 started the previous week on a positive note and opened with a gap-up. The index extended the rally on Tuesday as well and managed to breach the key psychological resistance level of 10,000. Despite experiencing selling pressure at the next resistance level of 10,130, the index managed to gain 1.5 per cent and close above the 10,000-mark for the week.

Short-term view : The short-term trend has been up for the index since recording a low of 9,685 on August 11. While trending up, the index has been volatile, but found support at 9,750 and 9,800 levels. The index breached its 21- and 50-day moving averages in early September and trades well above them.

There has been an increase in daily volumes over the past five trading sessions. The daily relative strength index has entered the bullish zone from the neutral region while the weekly RSI continues to feature in the bullish zone. Both the daily and weekly price rate of change indicators feature in the positive terrain, indicating buying interest. The index currently tests a key resistance in the band between 10,100 and 10,130.

An emphatic breakthrough of this resistance band is required to strengthen the short-term uptrend and take the index higher to 10,200 and 10,300 levels in the ensuing weeks. Traders with a short-term horizon should tread with caution and can go long on a strong rally above 10,130 with a tight stop-loss. On the other hand, if the contract fails to move beyond 10,130 and slips below the 10,000-mark, it can bring back selling pressure and pull the index down to 9,900 and 9,800 levels. Next key supports are placed at 9,750 and 9,700 levels.

Medium-term view: Last week, the index decisively breached the key resistance level of 10,000. This implies that the ongoing rally is yet another leg of the long-term uptrend and can test resistance at 10,200. A conclusive break above 10,200 can pave the way for an up-move to 10,500 and 10,854 in the medium term. Key supports are at 9,700 and 9,500 that can provide base for the index. Nevertheless, an emphatic plunge below 9,500 could be a threat to the medium-term uptrend. Next significant supports to watch are placed at 9,300 and 9,120 levels.

Nifty Bank (24,844.3) The Bank Nifty advanced 473 points or 1.9 per cent outperforming the bellwether indices last week. The index conclusively breached a key resistance level of 24,500 last Monday and continued to trend upwards. The short-term trend is up for the index and it hovers well above its 21- and 50-day moving averages. The daily relative strength index has entered the bullish zone from the neutral region backing the uptrend.

However, the Bank Nifty index faces a key resistance ahead at 25,000. Breakthrough of this hurdle can take the index northwards to 25,500 in the short term. Traders can buy on a strong rally above 25,000 levels with a fixed stop-loss. Key supports for the index are placed at 24,500 and 24,100 levels. Subsequent key supports are pegged at 23,850; 23,700 and 23,500 levels.

Sensex (32,272.6) Following two weeks of pause below the key resistance level of 32,000, the Sensex decisively breached this level last week. The index climbed 585 points or 1.85 per cent. A short-term trend has reversed up from sideways movement. The index had breached its 21 and 50-day moving averages and now hovers well above them. That said, the index faces a vital hurdle little ahead at 32,500 levels, from which it reversed lower in early August. A strong break above this hurdle is needed to strengthen the primary uptrend and take the index higher to 32,700 and 33,000 in the short to medium term. Conversely, inability to surpass the 32,500 level,can keep the index consolidating in the wide range between 31,200 and 32,500 for a while. Significant supports to note are at 31,800; 31,500 and 31,200 levels.

Global cues The Dow Jones Industrial Average broke a key resistance at 22,000 and gained 470 points or 2.2 per cent last week to close at 22,268.3. This rally has reinforced the bullish momentum in the index. The sideways corrective decline since early August appears to have come to an end last week. The index is currently in the initial leg of a short-term uptrend. Key resistances are at 22,300 and 22,400 levels. Supports to note are at 22,000 and 21,700 levels.

Japan’s Nikkei 225 index jumped 634 points or 3.3 per cent in the previous week to close at 19,909 levels. It now faces an immediate barrier at 20,000. Next resistances are at 20,200 and 20,500 levels. Key supports are placed at 19,700 and 19,500 levels.

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