Index Outlook . Indices in a short-term upmove

Strong results from the index heavyweight stocks and value buying in the mid and small-cap segments drove the rally in the benchmark indices — the Nifty and the Sensex — last week.

Most global equity indices moved higher and ended on a positive note, barring US indices that closed marginally in the negative territory. Domestic corporate earnings announcements will continue to drive the market in the truncated week ahead, besides the auto sales numbers for April and macroeconomic data.

On the global front, the movement in crude oil price and Federal Open Market Committee (FOMC) decision on rates can lend some direction.

Nifty (10,692.3)

Last week, the Nifty 50 index surpassed the key resistance at 10,560. The index advanced 128 points or 1.2 per cent, closing on a positive note for the fifth consecutive week in a row.

Short-term trend: With the recent rally, the index regained its bullish momentum and reinforced the short-term uptrend that has been in place from the March low recorded at around 10,000. The index hovers well above its 50 and 200-day moving averages.

However, the index now tests the next key resistance level at 10,700 with a positive bias. There has been an increase in daily volumes over the last two sessions. The daily relative strength index comfortably features in the bullish zone and the weekly RSI has entered the bullish zone from the neutral region, backing the momentum.

Both the daily as well weekly price rate of change indicators hover in the positive territory, underpinning the uptrend. A strong rally above the current barrier will alter the downtrend that has been in place from the January peak of 11,171. Subsequent targets for the index are 10,800 and 10,950.

However, inability to decisively move beyond 10,700 can drag the index down to 10,550 and then to 10,450. These supports can lend strength to the index. Further declines can find support at 10,350 levels. But an emphatic fall below 10,350 will mar the short-term uptrend and pull the index down to 10,250 and 10,100 levels. Next key supports are pegged at 10,000, 9,700 and 9,500 levels.

Medium-term trend: The index continues to hover in the crucial trend-deciding zone, but the bias is positive now. A decisive breach of the current resistance at 10,700 can take the index higher to 11,000 and 11,200 in the medium-term time-frame.

On the other hand, if the index slumps below the vital medium-term support level of 10,400, it can fall to 10,200 and 10,000 levels in the ensuing weeks. Key medium-term supports to note below 10,000 are at 9,500 and 9,200 levels.

Sensex (34,969.7)

Last week, the Sensex rose 554 points or 1.6 per cent, extending its up-move that commenced from the March low of 32,483. It has exceeded the near-term resistance at 34,500 and now tests a next one at 35,000. The indicators in the daily chart are showing positive signs, backing the up-move in the index. It can continue to trend upwards on a strong rally above 35,000. Targets are 35,400 and 35,800. Nevertheless, if the contract fails to move beyond 35,000, it can fall to 34,500 and then to 34,200. Next key supports below 34,200 are at 34,000 and 33,600.

Medium-term trend: The index tests a vital hurdle at current levels. A decisive rally above 35,000 can pave way for an up-move to 35,800 and 36,000 in the medium term. Further break above 36,000 can take the index northwards to 36,500 over the medium to long term. Vital medium-term supports are placed at 34,000 and 33,400 levels. A plunge below the second support level can pull the index down to 32,500.

Bank Nifty (25,394.6)

After an initial decline, the Bank Nifty took support at 24,500 and bounced back. On Friday, the index advanced 1.5 per cent led by strong gains from key banking stocks. The index advanced 450 points or 1.8 per cent, outperforming the bellwether indices.

The index appears to have conclusively surpassed its 50- as well as 200-day moving averages. That said, it is not out of the woods yet. It faces a significant trend-deciding 25,500-25,700 range ahead. A conclusive break above this barrier will alter the medium-term downtrend and take the index up to 26,000. Further rally about this level can push it higher to 26,500.

Conversely, any slump in the index can find support either at 25,000 or 24,800. A downward breach of 24,800 can pull the index down to 24,500 and then to 24,000.

Traders with a short-term horizon should tread with caution as long as the index trades below the near-term resistance level of 25,700. Consider initiating fresh long positions on a rally above this level with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average fell by 151 points or 0.6 per cent to 24,311 last week. The key support at 24,000 is providing base for the index. A strong plunge below this level can pull the index down to 23,700 and 23,500 levels. Key resistances are at 24,500 and 24,800.

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