Indices poised at a critical barrier

After inching up, the Sensex and the Nifty are placed at a trend-deciding zone

The domestic indices managed to stay above key levels, backed by forecast of normal monsoon and strong earnings announcement from IT stocks. Positive global cues backed this up-move. That said, the weakening rupee, along with rising crude oil price, can bring back the threat of inflation.

Corporate earnings will continue to dominate the markets in the coming week but investors need to keep an eye on the progress of the monsoon as well as the April month derivative expiry week.

In the global markets, the rising yield in the US and weakness in tech stocks have added selling pressure on US markets, which should be monitored in the ensuing week.

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-------------------------------------------------------------------------------- WHAT TO WATCH
  • Rupee movement
  • Q4 results of blue-chip stocks
  • ECB rate decision
  • Bank of Japan decision
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Nifty (10,564)

In the midst of volatility, the Nifty index managed to move higher last week. It added 83 points or 0.8 per cent.

Short-term trend: The index has been in a short-term uptrend since taking support at around 10,000 in late March this year. It has surpassed the 21 and 50-day moving averages, while trending up, and hovers well above them. And the index has managed to exceed a key medium-term resistance zone between 10,400 and 10,450 recently, which can lend support now. It now tests a key resistance at 10,560 that has to be breached decisively to strengthen the uptrend and take the index higher to 10,700 in the short term.

Having said that, if the index fails to move beyond either 10,560 or 10,700, the medium-term downtrend, that has been in place from the January peak of 11,171, will remain intact. A slump below 10,400 can pull the index down to 10,300, 10,100 and 10,000 levels over the short term. But a conclusive plunge below 9,950 will strengthen the downtrend and drag the index lower to 9,700 and 9,500 levels.

Medium-term trend: The index is entering a crucial trend-deciding zone. The medium-term downtrend that commenced from the January high, is still in place while the corrective uptrend that started from the March low is also intact.

Therefore, the price action over the next two weeks is crucial for the index. Inability to move beyond the key barrier at 10,700 will keep the downtrend intact and the possibility of the index declining to 10,000, will remain open. Subsequent medium-term supports below 10,000 are at 9,500 and 9,200.

Nevertheless, an upward break of the hurdle at 10,700 will change the down-trend and take the index higher to the medium-term target levels of 11,000 and 11,200.

Sensex (34,415.5)

The index succeeded in maintaining the corrective up-move and advanced 222 points or 0.65 per cent last week. However, the price actions over the last four sessions were choppy in narrow ranges, that signify that the uptrend lacks momentum. Moreover, the index faces a key resistance at 34,500.

A strong upward break of this level can boost the uptrend and take the index northwards to 35,000 in the short term. That said, if the index fails to move beyond either 34,500 or 35,000, it can witness a corrective decline that can find support either at 34,000 or 33,500 in the same time frame. Further declines below 33,500 can pull the index down to 33,000. Next significant support is at 32,500.

Medium-term trend: The index needs to break conclusively above the significant resistance level of 35,000. In that scenario, the Sensex can trend higher to 35,400 and 35,800 levels. Breakthrough of the next resistance in the 35,800-36,000 band is needed to reinforce the long-term uptrend and push the index to 36,500 over the medium to long term. But a plunge below 33,400 can drag the index down to 32,500 in the medium term.

Bank Nifty (24,943.8)

The Bank Nifty met with a key resistance at 25,425 last week and started to decline. The index has slipped 256 points or 1 per cent last week. The corrective uptrend that started from the March low of 23,605 is losing strength. A fall below the immediate support level of 24,800 can further weaken the index and drag it down to 24,500. Next key support below 24,500 is placed at 24,000, which is significant medium-term base.

Traders with a short-term perspective can consider initiating fresh short positions on a decisive fall below 24,800 with a fixed stop-loss. Further decline below the base level of 24,000 will reinforce the downtrend that has been in place from the January high of 27,652. Such a break can drag the index down to 23,605, 23,200 and 23,000 levels over the medium term.

But, a conclusive rally beyond the key trend-deciding 25,500-25,700 range will reinforce the bullish momentum and take the index northwards to 25,840 and 26,000 in the short term. A strong rally above 26,000 can give a medium-term target of 26,500 for the index.

Global cues

In the previous week, the Dow Jones Industrial Average climbed 102 points or 0.4 per cent to 24,462.9 levels, amid choppiness. It continues to test its key resistance at 24,500. We restate that only a strong rally beyond this level can strengthen the near-term uptrend and take the index northwards to 24,800 and 25,000 in the short term. With the index facing difficulty in surpassing 24,500, it can consolidate sideways in the 23,500-24,500 range. Near-term supports are at 24,000 and 23,700.

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