Index Outlook: Indices face key hurdle again

After a sombre start, the Sensex and the Nifty 50 ended the week on a positive note, thanks to a slew of populist measures announced in the Interim Budget 2019-20 and short-covering on expiry of January series futures and options contracts. The US Federal Reserve’s decision to hold rate hikes also buoyed investor sentiment across Asia and emerging markets. On the domestic front, Q3 earnings and the RBI’s policy announcement scheduled on February 7, will be keenly watched.

Nifty 50 (10,893.6)

Following an initial decline, the Nifty 50 index took support at around 10,600 and bounced back strongly, due to short-covering and buying interest. The index advanced 113 points or 1 per cent last week. It continues to test the 200-day moving average and faces key resistance at 11,000.

An emphatic breach of this barrier and the key trend-deciding level of 11,100 are needed to strengthen the short-term uptrend that began in October 2018. Such a break can take the index up to 11,300 and 11,500 levels. But inability to move beyond the key resistance can drag it down to the immediate support levels of 10,700 and 10,600.

A decisive fall below these supports can pull the index lower to 10,400. The sideways consolidation phase that has been in place since early November 2018 in the 10,400-11,000 band will continue to be intact as long as the index trades above 10,400. A strong decline below 10,400 can bring back bearish momentum and drag the Nifty index down to the subsequent key supports at 10,300 and the 10,100-10,000 band.

Medium-term trend: As long as the index trades below the key trend-deciding level of 11,100, the medium-term trend will remain down. A conclusive break above this hurdle will alter the downtrend and take the index up to 11,300 and 11,500. On the other hand, a slump below the lower boundary of the sideways range will drag the index lower to 10,000 levels. Next key supports are at 9,900, 9,700 and 9,500 levels.

Sensex (36,469.4)

Taking support at 35,400 the Sensex bounced back strongly, recouping the initial loss in the previous week. The index added 443 points or 1.2 per cent. It once again tests the crucial resistance level of 36,600, the upper boundary of the sideways consolidation phase that has been in place since last November in the 34,600-36,600 band. A conclusive break above 36,600 will strengthen the bullish momentum and push the index higher to 37,000 and 37,400.

But inability to break above 36,600 will keep the index in the sideways range for a while. Key supports at 36,000 and 35,400 can provide base in case of a corrective decline. That said, a decisive fall below the next support at 35,000 will reinforce the medium-term downtrend that has been in place since the August 2018 peak of 38,989. Thus, the index can slip to test 34,600 over the medium term. Next key supports are placed at 34,400 and 34,000.

Nifty Bank (27,085.9)

Last week, the Nifty Bank was volatile. Following a decline, it rallied and once again slumped to close marginally in the red, declining 29 points or 0.1 per cent. It has formed a spinning top candlestick pattern in the weekly chart, implying indecisiveness. A strong fall below the immediate support at around 26,900 can drag the index down to 26,500. A further slump below 26,500 can pull the index down to 26,000. However, the medium-term uptrend that has been in place since October 2018 will remain intact as long as the index trades above the key base in the 25,800-26,000 band. Traders with a short-term view should tread with caution and consider taking short positions on a decisive fall below 26,900 with a fixed stop-loss.

Conversely, an emphatic break-out of the immediate resistance at 27,500 is needed to strength the uptrend and take the index northwards to 27,700 and 28,000 in the short term.

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