Index Outlook: Uptrend to continue

The indices show signs of bullish trend reversal

After a lacklustre start, the benchmark indices — the Nifty and Sensex — gained bullish momentum in the later part of the previous week. Strong rally in IT index and late rally in the banking index backed the up-move. Auto sales numbers for February are due this week.

However, the major focus will be on the global markets. Investors will closely watch the new Federal Reserve Chair, Jay Powell’s testimony to the House Financial Services Committee to understand his outlook on both the US economy and inflation.

US GDP and inflation data are also due for release this week. Rupee weakening against the dollar and crude oil price moving above $63 per cent a barrel also need a close watch.

Nifty 50 (10,491)

After an initial decline, the Nifty 50 index found support at 10,300 once again and bounced back. It witnessed a good rally in the later part of the previous week. Medium-term uptrend line also provided base for the index.

Short-term trend

The index took support at around 10,300 for the second time in February and reversed higher. A positive divergence in the daily price rate of change indicator backs this reversal. Moreover, the index continues to test the significant medium-term support in the band between 10,450 and 10,500.

With the choppiness, the index has formed a dragonfly doji candlestick pattern in the weekly chart indicating a bullish reversal. This signifies that the near-term downtrend is likely to change direction. Further, the positive divergence in daily price rate of change indicator supports this. There has been an increase in daily volume over the past three trading days.

Nevertheless, the index faces a significant resistance ahead at 10,600. An emphatic breakthrough of this barrier is needed strengthen the trend reversal and take the index northwards to 10,700 and then to 10,800 levels in the short term.

Having said that, inability to move beyond 10,600 can keep the index vacillating sideways in the wide range between 10,300 and 10,600 for a while.

A strong plunge below the key immediate support level of 10,300 will also imply breach of the medium-term support band at 10,450 and 10,500. This could drag the index down to 10,200 and 10,100 levels. Next vital base is in the 10,000-10,100 band.

Medium-term trend

As the index continues to test the crucial medium-term support in the 10,450-10,500 range, the possibility of resuming the medium-term uptrend is still alive. A conclusive rally above 10,800 can push the index higher to 11,000.

Further breakthrough of this hurdle can push the index northwards to 11,500 in the medium term with a pause at 11,300 levels. A decisive fall below the current base level can drag the index down to 10,000.

Such a down move will weaken the uptrend and pull the index down to the next support level of 9,700. Investors with a medium-term perspective and high-risk appetite can stay invested and buy in declines with a stop-loss at 10,200.

Sensex (34,142.1)

Last week, the Sensex advanced 131 points or 0.4 per cent amidst volatility. The index has continued to test the key support in the 33,800-34,000 band since early February.

Next key support is at 33,550. It has formed a hammer pattern in the weekly chart, which indicates bullish reversal. But, the index faces resistance at 34,500. A strong up move beyond this level can push the index higher to 35,000 in the short term. Subsequent resistances are placed at 35,500 and 35,700. A decisive rally beyond 35,700 is required to strengthen the medium-term uptrend to take the index higher to 36,000 and 36,400 levels.

Conversely, if the index plunges below 33,800 it can take it down to 33,550 initially. A decline below this support will be a threat to the medium-term uptrend and can drag the index down to 33,000 and 32,600.

Nifty Bank (25,302.5)

Last week, the Bank Nifty advanced 0.55 per cent in the midst of choppiness and has formed a dragonfly doji candlestick pattern in the weekly chart.

This is a bullish reversal pattern. Besides, the index tests a key support at 25,000 and reverses higher from this level.

A conclusive rally above 25,500 can push the index northwards to 25,880 and 26,000 in the short term; this could be a corrective up-move.

Traders should tread with caution and initiate long positions above 25,500 levels with a fixed stop-loss. To alter the short-term downtrend, the index needs to emphatically breach above 26,000 levels.

Next resistances are pegged at 26,300 and 26,500 levels. But a slump below the immediate support level of 25,000 will negate the bullish view and drag the index down to 24,750 and then to 24,500 levels. Subsequent supports are placed at 24,200 and 24,000.

Global cues

The Dow Jones Industrial Average managed to stay above the immediate support level of 25,000, helped by 1.4 per cent gain on Friday. The index added 90 points to close at 25,309. Now, the index faces key resistance at 25,500.

A conclusive breach of this barrier will reinforce the uptrend and take the index higher to 26,000 and then to 26,200 levels. Key supports below 25,500 are placed at 24,750 and 24,500 levels.

But failure to move beyond 25,500 can keep the index in a sideways movement between 24,500 and 25,500 for a while. Significant supports below 24,500 are at 24,300 and 24,000 levels.

The Nikkei 225 added 0.8 per cent to close the week at 21,892. It tests hurdle at 22,000. A rally above this level is needed to strengthen the corrective up-move and take it higher to 22,300 and 22,500 levels. Key supports below 21,500 are at 21,300 and 21,000.

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