Index Outlook . Indices likely to recover in the near term

The domestic stock market, which remained under pressure through the week, witnessed complete mayhem on Friday. The massive sell-off was led by shares of housing finance companies on fears of a possible liquidity crisis. YES Bank plunged too after the RBI asked its managing director and CEO Rana Kapoor to step down after an extended term till January 31, 2019.

The financial stocks’ meltdown dragged the markets down on Friday. The banking sector index was the major under-performer last week and dragged the Nifty as well as the Sensex lower. In the coming week, the spotlight will be on the Fed meeting, with market players expecting another rate hike. Also, rising crude oil price and the weakening of the rupee need a close watch. Hence, investors should tread with caution in the ensuing derivative expiry week.

Nifty (11,143.1)

In the truncated week, the Nifty 50 index witnessed selling pressure at higher levels and began to decline. During the latter part of the week, the index experienced wild swings and nose-dived 5.6 per cent to record an intra-week low at 10,866. However, it recovered some of the losses due to value buying and short-covering, but it closed the week with a fall of 372 points or 3.2 per cent lower.

Short-term trend: After a sharp fall on Friday, the index is on the brink of altering the short-term uptrend that has been in place since taking base at around 10,550 in June this year. Recording an intra-day low at 10,866, the index managed to close above the key medium-term support band between 11,000 and 11,100. Moreover, it is currently poised near the short-term trend-deciding zone in the 11,150-11,200 range.

With the index breaching the lower boundary of the Bollinger Bands and reaching a near-term oversold territory, a corrective up-move can’t be ruled out at this juncture. Further, with the September month derivatives expiry ahead, there could be some short-covering. An upward reversal from the immediate key support band between 11,000 and 11,100 can take the index higher to 11,350 or 11,400 levels in the coming week.

Further rally beyond 11,400 can push the index up to 11,500 in the short term. That said, a strong breakthrough of 11,500 is required to alter the on-going downtrend and take the index further higher to 11,600 and 11,750 levels. A significant break above 11,750 will reinforce the bullish momentum and take the index northwards to 11,887 and 11,950 levels.

The daily relative strength index has entered the bearish zone from the neutral region and the weekly RSI has entered the neutral region from the bullish zone. Other daily indicators hover in the negative territory with a negative bias. A decisive tumble below the 11,000-mark can drag the index down to 10,900 and then to 10,800 in the short term. Investors with a short-term perspective can consider booking profits in corrective rallies and stay on the sidelines for a while until the current volatility settles.

Medium-term trend: With the index slipping below the vital medium-term support band between 11,000 and 11,100 in the previous week, the medium-term uptrend is under threat.

An emphatic downfall below 11,000 will start weakening the uptrend and drag the index down to 10,800 and 10,600 in the medium term. Further slump below 10,600 will strengthen the down-move and drag the index lower to 10,400 and 10,100. Conversely, a decisive rally beyond 11,750 is required to push the index northwards to 11,887 and 12,000 over the medium term.

Sensex (36,841.6)

The Sensex experienced selling pressure and continued to decline last week and has plummeted 1,249 points or 3.3 per cent. However, the index currently tests a key support at 37,000. Next key support is in the 36,400-36,500 band. An upward reversal from these supports can lead to a relief rally or a corrective up-move in the index.

In such a scenario, the index can witness an up-move to 37,200 and then to 37,600 levels in the near term. Subsequent key resistances are pegged at 38,000 and 38,400.

A conclusive break-out of the 38,000-mark is needed to change the progressing downtrend and take the index higher to 38,400 and 38,800 or 39,000 in the short to medium term horizon. But a plunge below the key support level of 36,500 will underpin the bearish momentum and drag the index down to 36,000 and then to 35,500 levels in the medium term.

Nifty Bank (25,596.9)

Last week, the Bank Nifty nose-dived 1566 points or 5.8 per cent breaking below the significant support level of 26,000 and its 200-day moving average as well. With this plunge, the index has altered the uptrend that commenced from the March low of 23,605 levels.

On the downside, the index managed to find support at around 25,000 and bounced back. As the index tumbled sharply in a short span of time, a corrective up-move can’t be ruled out. Therefore, the index can once again find support at 25,500 or 25,250 in the near term.

A corrective up-move can test resistance at 26,000 and then at 26,300 in the coming week. Further rally beyond 26,300 can extend the corrective up-move to 26,500 or 26,750 levels. Only a strong breakthrough of the key medium-term resistance at 27,000 will alter the downtrend and take the index higher to 27,500 levels in the medium term. The daily indicators and oscillators feature in the bearish zone and their weekly counter-parts are also trending down, showing signs of weakness.

On the downside, a plunge below 25,250 can pull the index lower to 25,000. Next supports are at 24,800 and 24,500.

Traders with a short-term perspective should desist taking fresh positions as the index is hovering at a crucial medium-term support zone.

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