Technical Analysis

Index outlook: Market likely to resume its uptrend

Yoganand D | Updated on January 17, 2018 Published on July 09, 2016

Both the broader indices take a breather and are poised for a rally on strong global cues



Following a positive start in the previous week, the Nifty and Sensex started experiencing selling pressure due to mixed global cues and a cautious approach ahead of the June-quarter earnings season.

Amid volatility, the indices closed the truncated week on a slightly negative note, with the Nifty slipping five points or 0.06 per cent and the Sensex dropping 18 points or 0.7 per cent.

The defensive sector indices such as Nifty FMCG and Nifty IT indices were the key underperformers last week, falling 0.8 per cent and 1.4 per cent respectively, dragging the broader indices. Foreign investors remained net buyers last week, pushing this year’s inflows to $3 billon.

The European and US market witnessed sturdy rally on Friday after strong US jobs data released by the Labour Department. In June, the US economy added 287,000 jobs as manufacturing employment increased, breaking the consensus forecast of 175,000.

Positive global cues can trigger a bullish start in the Asian and Indian market in the coming week. The quarter ending June earnings season will kick-off with Tata Consultancy Services scheduled to announce its results on July 14.

Infosys and Reliance Industries will declare results on July 15. These can set the direction for the market. There is a high possibility of the Goods and Services Tax (GST) Bill being passed in the upcoming monsoon session of Parliament that starts on July 18. This can be another trigger for the market.

Nifty 50 (8,323.2)

The index started the week on a positive note and recoded an intraweek high at 8,398. However, subsequent profit-booking wiped off the gains and the index closed in the negative territory. After testing the key resistance at 8,300, the index managed to close above it.

The week ahead: The Nifty 50 continues to be in a short-term uptrend. It breached key resistances at 8,200 and 8,250 levels a week before.

The index can retest 8,400 levels and rally further to 8,500 in the near term. Traders with a short-term horizon can make use of declines to initiate long positions while maintaining a stop-loss at 8,180 levels.

Any corrective declines can find support at either 8,250 or 8,200. But a conclusive fall below 8,200 will be a threat to the near-term uptrend and drag the index down to 8,000 and 7,900 levels.

Medium-term trend: Since the February low at 6,825, the index has been on a medium-term uptrend. Strong rally beyond 8,300 can take the index northwards to 8,500 and 8,600 in the medium term.

On the other hand, an emphatic plunge below the significant support level of 8,000 can reignite selling pressure and drag the index down to 7,800 and 7,700 in the same period.

Investors with a medium-term outlook can hold the long positions as long as the index trades above 7,700. Moreover, strong rally beyond 8,300 will alter the intermediate-term downtrend in the index that has been in place since January 2015.

Sensex (27,126.9)

The index slipped 18 points or 0.7 per cent last week amid volatility. However, the short as well as medium-term uptrends are intact.

The week ahead: The index continues to test a key resistance at 27,000. Decisive rally beyond this level can take the index higher to the next resistance level at 27,500. But to change the intermediate-term downtrend, the index needs to strongly breach 27,500 levels.

The Sensex can then accelerate to 28,000 in the coming months. But a slump below 27,000 can pull the index down to the support levels of 26,750, 26,500 and 26,250. Traders with a short-term perspective can go long with a stop-loss at 26,650. Supports below 26,250 are placed at 26,000 and 25,800.

Bank Nifty (18,016.2)

The Bank Nifty extended its rally marginally by advancing 30 points in the previous week. Nevertheless, the index continues to test a significant resistance at 18,000. Strong breach of this level can take the index northwards to 18,300 and then to 18,500 in the short term.

Traders with a short-term horizon can initiate fresh long positions on a decisive move above 18,000 levels with a fixed stop-loss. On the other hand, any selling pressure can drag the index lower to 17,830 and 17,600 which can lend support. Subsequent supports are at 17,500 and 17,200.

Global cues

The Dow Jones Industrial Average extended its post-Brexit rally by advancing 197 points or 1.1 per cent to close at 18,146 last week, triggered by strong jobs data. The index has breached a key resistance at the 18,000-mark.

It can then encounter resistance at 18,300. Rally beyond this hurdle can take it to new highs in the short term. Key supports to note are at the levels of 18,000, 17,800 and 17,600.

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