Index Outlook: Indices struggle to cross hurdles

The domestic benchmark indices — the Nifty and the Sensex — danced to global tunes last week as US-China trade war fears and disappointing US jobs report roiled US markets.

However, Friday’s reversal of about 1 per cent in the key indices appears to be just a breather. The Nifty and the Sensex are pausing above the key base level of 10,500 and 35,000 respectively.

The ensuing week will be a crucial for markets as the outcome of the five State elections will determine the short-term movement in the market.

On the macroeconomic front, the consumer price index (CPI) inflation data and wholesale price index (WPI) data are to be announced this week. Moreover, the movement of the rupee and the crude oil price action needs a close watch as usual.

Global markets may face volatility as US stocks slide on the back of uncertainty over the US-China trade war and concerns of a slowing US economy. Therefore, investors should tread with caution in the week ahead.

Nifty (10,693.7)

Last week’s 1.7 per cent fall in the Nifty has dragged the index below the key trend-deciding 10,700-10,800 band. This makes the earlier up-move above this band a false break-out, and a decisive rally above this band is required to alter the downtrend that has been in place since the late August peak of 11,760 levels.

Moreover, the index has another vital resistance pegged at 11,000-mark, which also has to be surpassed for a convincing turnaround in the trend.

A strong rally above this level will take the index higher to 11,100 and then to 11,300 in the short term.

Inability to go past the immediate resistance at 10,800 can keep the index moving sideways in the 10,500-10,800 band for a while.

That said, a decisive plunge below the immediate support of 10,500 can drag the index down to 10,400 and 10,300; these levels can act as a key base and cushion the fall. A further decisive decline below 10,300 can bring back selling interest and drag the index lower to 10,100 and 10,000 levels in the short term.

Traders with a short-term view should desist taking long positions as long as the index trade below 10,800 levels.

Medium-term trend: The rally, which commenced from the key medium-term support level of 10,000 in October, is losing strength.

After testing resistance at 10,900, the index retreated over 1.5 per cent last week, showing signs of weakness. A tumble below 10,400 can drag the index down to 10,000 initially.

A strong fall below the key medium-term support level of 10,000 can pull the index down to 9,900, 9,700 and 9,500 levels over the medium term. On the upside, an emphatic break above 11,000 is required to reinforce the bullishness and take the index higher to 11,300 and 11,500 in the medium term.

Sensex (35,673.2)

The Sensex fell 521 points or 1.44 per cent last week, slipping below the key resistance in the 35,800-36,000 band.

This resistance continues to remain significant. An emphatic weekly close above 36,000 levels is required to strengthen the up-move. Moreover, the index has another vital barrier at 36,500. A break above 36,500 will pave the way for an up-move to 37,000 and 37,400 over the medium term.

On the other hand, the index hovers above a crucial support level of 35,000. A strong decline below this base will diminish the hope of a rally above 36,000 for a while and drag the index down to 34,500 and 34,000 in the short to medium term.

Nifty Bank (26,594.3)

The Nifty Bank index was choppy last week. After declining initially, the index bounced up, gaining 1.5 per cent on Friday. But it ended the week, declining 1 per cent.

Key resistance at 27,000 limited the rally last week. In the coming week, the index could face difficulty in surpassing this barrier. A strong break above 27,000 will underpin the bullish momentum and take it up to 27,500 and to 27,700 levels in the short term. Next key resistance above 27,700 is at 28,000.

We reiterate that traders with a short-term perspective should consider taking fresh long positions only on a strong break above 27,000 levels with a fixed stop-loss.

However, resumption of the downmove can find supports either at 26,300 or 26,000. A slump below 26,000 will weaken the uptrend and drag the index down to 25,700 and then to 25,500 in the medium term. Subsequent supports are at 25,200 and 25,000 levels.

Global cues

The Dow Jones Industrial Average tumbled 1,149 points or 4.5 per cent last week to close at 24,388.9.

The short-term outlook is bearish for the index. It closed below the key support level of 24,500. Continuation of the down-move can pull the index lower to the immediate support level at 24,000.

A further fall below this level will strengthen the downtrend and the next support at 23,500 and 23,000 will come into play. Key resistances are at 24,700 and 25,000. A breach above these can bring in a corrective rally to 25,300 or 25,500 levels.

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