Indices could remain under pressure

Both the Nifty and Sensex are experiencing profit-taking at higher levels

Negative domestic and global cues triggered a sell-off in the benchmark indices — the Nifty and Sensex, last week. A warning letter by the US drug regulator to Lupin for its two plants spelt trouble for other key pharma stocks as well, while rally in global crude oil prices dampened sentiment.

Industrial output slowed to 3.8 per cent in September, data released by the Central Statistics Office (CSO) on Friday showed. The IIP grew at a meagre 2.5 per cent in April-September (first two quarters of this fiscal) compared to 5.8 per cent in the first half of 2016-17. Investors needs to tread with caution in the ensuing week as the market could react to the September industrial output data, rising crude oil prices and corporate earnings .

Nifty 50 (10,321.7)

The Nifty index tested the key resistance in the band between 10,450 and 10,500 last week. After recording a new high of 10,490 last Monday, the index did a volte-face and fell sharply. The index closed the week on a negative note by declining 130 points or 1.25 per cent.

Short-term trend: The short-term uptrend that has been in place since the September low of 9,687 is under threat now. The daily relative strength index and price rate of change indicators are displaying negative divergence, implying a near-term trend reversal. Moreover, the daily as well as weekly relative strength indices reaching the overbought territory had also triggered the recent plunge. This corrective decline can extend in the near term as well.

The index now tests an immediate support as well as the 21-day moving average at around 10,300.

A strong downward break of this level can drag the index down to 10,200 and then to 10,050 levels in the short term. A conclusive breach of the significant base in the band between 10,000 and 10,050 can alter the short-term uptrend and could pull the index down to 9,900 and 9,700-9,750.

On the other hand, the index has immediate resistance in the range between 10,450 and 10,500. An emphatic break above this hurdle can accelerate the index higher to 10,544 and 10,600 in the short term.

Medium-term trend: The medium term continues to be up for the index. It needs to decisively break above the key resistance ahead at 10,500. Such an emphatic breakthrough can take the index higher to 10,921 in the medium to long term, with some minor corrections.

That said, a strong plunge below the key medium-term support in the band between 9,700 and 9,750 will be a threat to the uptrend. Next vital supports are placed at 9,500 and 9,300 levels.

Nifty Bank (25,498.9)

Following two weeks of strong rally, the Bank Nifty is taking a breather. Last week, it was choppy, testing the resistance in the range between 25,600 and 25,700. The index fell 151 points or 0.6 per cent in the previous week. The short-term trend is up and will remain intact as long as the index trades above 24,700 levels.

Traders with a short-term view should tread with caution as the index is experiencing choppy movement. A strong rally beyond 25,700 can push the index northwards to 26,000 in the short term.

On the other hand, a tumble blow the immediate support level of 25,200 can bring back selling pressure and pull the Bank Nifty down to 25,000 or even to 24,700 levels. Key supports below 24,700 are pegged at 24,500 and 24,300.

Sensex (33,314.5)

The short-term uptrend that commenced from the September low of 31,081 came to a halt last week as the index slumped 371 points or 1.1 per cent. The index tested resistance at around 33,700 last Tuesday and fell sharply, forming a bearish engulfing candlestick pattern which implies near-term trend reversal. Thereafter, the index extended its fall and currently tests support at 33,300.

A further fall below the base level can strengthen the bearish momentum and also bring in further profit-booking, which could drag the index down to 33,000 and 32,700 levels in the short term. The short-term uptrend will be under threat only if the index plunges below the key support level of 32,400. The index can then decline to 32,000 and 31,700 in the short to medium term.

Conversely, if the index reverses higher from either 33,000 or 32,700 levels, then it can test resistance at 33,700. A conclusive upward breakthrough of 33,700 can reinforce the short-term uptrend and take the index higher to 34,000 and then to 34,500 in the medium term.

Global cues

In the previous week, the Dow Jones Industrial Average snapped its eight-week rally and fell by 116 points or 0.5 per cent to close at 23,422.2. The daily indicators and oscillators are displaying negative divergence, implying trend reversal. Continuation of the fall can lead to trend reversal and the index can decline to test the key medium-term support level of 23,000 levels with a pause at 23,300 levels.

A strong breach of the immediate resistance at 23,500 can take the index higher to 23,600 once again. A further break of 23,600 can strengthen the medium-term uptrend and push the index higher to 23,700 and 23,800 levels.

The Nikkei 225 is experiencing selling pressure at higher levels. The index tested a barrier at 23,000 and started to decline last week to close at 22,681. A fall below 22,500 can drag the index down to 22,000. Key resistances to note are 23,000 and 23,400.

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