Index Outlook: The bull charge continues

The Nifty and the Sensex surpassed key hurdles and may still have steam left

The bellwether indices Nifty and Sensex closed on a record high last week, despite the Pharma and PSU Bank index declining 10.8 per cent and 6 per cent respectively. Strong gains in sector indices such as Auto, Bank, Finance and IT backed the broader market rally along with support from metal stocks. The mid- and small-cap indices were volatile — after an initial decline, they bounced back in the later part of the week but still closed in negative territory.

Nifty 50 (9,595.1)

After an initial decline, the Nifty 50 index found cushion in the 21-day moving average and a key support at 9,345. Short-covering and re-emergence of buying interest in key stocks pushed the index up in the later part of the week.

Short-term trend: The June month series started with a bang. The Nifty index breached its significant resistance level of 9,500 by gaining 0.9 per cent on Friday and recorded a new high. With the recent rally, the daily indicators and oscillators did a volte-face. The daily relative strength index (RSI) has re-entered the bullish zone from the neutral region and the daily price rate of change indicator has moved back into the positive territory.

The weekly RSI continues to hover in the overbought territory. But this has less significance as the daily RSI is showing positive signs. Only if the daily RSI starts to move lower and enters the bearish zone, it will have a negative impact on the weekly RSI.

The Nifty faces a resistance ahead at 9,600 levels. Strong rally beyond this level can take the index higher to 9,700 or even 9,800 in the short term.

Traders with a short-term perspective can buy with a stop-loss at 9,400 levels. The key support in the band between 9,345 and 9,400 can act as a vital base in the future.

A decisive fall below 9,345 levels can find support at 9,250. Only a strong plunge below this level will be a threat to the short-term uptrend. Next support levels to watch are at 9,191 and 9,075.

Inability to move beyond 9,700 can keep the index moving sideways between 9,500 and 9,700 for a while.

Medium-term trend: With the strong rally last week, the medium-term uptrend has strengthened. The medium-term trend deciding level has shifted higher to 9,000 from 8,800 levels. This level is a key long-term support for the index in the medium term. Investors with a medium-term perspective can stay invested with a stop-loss at 8,950 levels. Immediate medium-term supports are at 9,250 and 9,100 levels.

Extension of the uptrend can push the index northwards to 10,037 and 10,854 in the medium term while pausing at 9,700 and 9,800 levels.

Sensex (31,028.2)

The Sensex surged strongly, breaking above the key resistance level of 30,500 last week. The index is currently testing resistance at 31,000. Continuation of the ongoing bullish momentum can push the index higher to 31,500 and then to 32,000 in the short to medium term. Immediate supports are pegged at 30,500 and 30,000 levels. Key medium-term support is in the band between 29,000 and 29,500.

Bank Nifty (23,362.2)

The Bank Nifty jumped 592 points (2.6 per cent) to a new high, boosting the broader indices too. The index has emphatically breached the key resistance level of 23,000 which is now a key base.

The indicators and oscillators in the daily chart have re-entered the bullish zone, backing the uptrend. The index can now test resistance at 23,500. Strong rally beyond this level can push it higher to 24,000 in the short term. Traders can buy with a stop-loss at 22,950.

Key supports below 23,000 are placed at 22,500 and 22,300. Only a strong fall below 22,500 will be a threat to the ongoing short term uptrend.

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