Index Outlook: Indices face crucial resistance ahead

While the the Sensex and the Nifty could remain choppy, key supports provide cushion

Escalating trade war concerns and rising crude prices took a toll on global markets, last week. Taking cues from global indices, the domestic benchmark indices — the Nifty and the Sensex — also plummeted and closed in the red. Going ahead, domestic factors such as June month auto sales number, manufacturing sector data and rupee movement, will drive domestic market indices.

Monsoon, which has been well ahead of schedule, is a positive, but further progress needs to be watched. Globally, the Mexico election, US jobs and Fed minutes are on the radar.

Nifty 50 (10,714.3)

The Friday's 125 points or 1.2 per cent rally has made up for some of the loss in the initial part of the week. Snapping the five-week gaining streak, the index ended the previous week by declining 107.5 points or 1 per cent.

Short-term trend: The recent recovery has kept the short-term uptrend intact in the index. Since the March 2018 low at around 9,950, it has been trending up. Last week, the index took support at around 10,550 and bounced back smartly.

However, it now faces vital resistances ahead at 10,800 and the next one in the 10,900-10,930 zone. These hurdles can cap the upside in the near term. An emphatic upward break-out of the second resistance is required to reinforce the uptrend and push the index higher to 11,000 and 11,100 in the short term.

 

 

 

The indicators and oscillators in the daily chart and weekly charts are displaying mixed cues. Once again, with volatility on the cards, traders with a short-term view should tread with caution.

Conversely, if the index slumps below the immediate support level of 10,600, it can weaken the uptrend. In such a scenario, the index can test supports at 10,550, 10,420 and 10,350 levels.

To alter the short-term uptrend, the index needs to tumble below 10,350. Next supports pegged at 10,250 and 10,100 can cushion the index in such a scenario.

Medium-term trend: The index continues to move sideways, amid volatility. Since early May, the index has been in a consolidation phase in the range between 10,400 and 10,900. As long as the index trades in this range, the medium-term trend will remain indecisive.

A conclusive break-out on either side of this range will provide direction for the next move. An emphatic break above 10,900 will strengthen the uptrend and push the index up to 11,000 and 11,200 over the medium term. On the downside, a downward break below the lower boundary of 10,400 can drag the index down to 10,200 and 10,000 in the same time frame.

Sensex (35,423.8)

The Sensex surged 385 points or 1.1 per cent on Friday, recouping some of the initial loss. But the index closed the week on a negative note, falling 266 points or 0.77 per cent. On the upside, key resistance at 35,800 capped the upside last week.

The 35,800-36,000 range is a crucial resistance band to watch out. Immediate resistance is at 35,600. The indicators and oscillators in the daily chart display mixed trends.

Any corrective decline can find support at 35,200 and 35,000 levels once again.

However, a strong tumble below the 34,800-35,000 band will start weakening the uptrend and pull the index lower to 34,500 levels. Subsequent key support is placed at 34,300. Conversely, a strong upward breakthrough of the 36,000-mark will reinforce the bullish momentum and take the index up to 36,200 in the short term.

Medium-term trend: With yet another volatile week gone by, we reiterate that there is no change in the medium-term view.

The index has continued to waver sideways around the 35,000-mark since early May. After recording an intra-week low at 34,937, the index managed to bounce back decisively.

But it has key resistances ahead at 35,500 and 36,000. An upward breakthrough of these barriers will pave way for an up-move to 36,200 and 36,400 levels. But a fall below 34,000 can drag the index down to 33,400 levels over the medium term.

Nifty Bank (26,364.2)

Last week, the Bank Nifty retreated 402 points or 1.5 per cent, slipping below the key support level of 26,500. The index has slightly closed below its 21-day moving average.

The daily and weekly relative strength indices feature in the neutral region with a downward bias.

The daily price rate of change indicator is charting downwards, showing signs of weakness. Continuation of the down-move can test support at 26,000 in the near term.

Further plunge below this level will start threatening the short-term uptrend that has been in place from the March low of 23,605 levels.

Such a fall below 26,000 can drag the index down to the 25,500-25,600 band over the short-to-medium term.

Traders with a short-term perspective can initiate fresh short positions only if the index fails to move beyond 26,500 levels with a fixed stop-loss. Targets are 26,000 and 25,600 levels.

On the other hand, if the index manages to conclusively break above 26,500 levels, an up-move to 27,000 is possible.

Nevertheless, to strengthen the uptrend, the index needs to conclusively breakthrough this barrier. Next key resistances are at 27,500 and 28,000 levels.

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