Index Outlook: Heady close, cautious start

Nifty and Sensex touched record highs last week but are set to start 2018 with prudence

The Nifty and Sensex ended the year 2017 on a high, gaining 29 per cent and 28 per cent correspondingly. Most of the sector indices have done well and outperformed the broader indices in 2017 — the Bank Nifty gained 40 per cent, the metal index advanced 48 per cent and FMCG index surged 29 per cent.

The IT and Pharma sector indices, though, continued to underperform. Overall, it was an excellent wealth creation year domestically as well as globally. The December auto sales numbers can set the tone for the indices in the coming week. But rising crude oil price and FOMC meeting minutes can trigger some sell-off globally. Investors should tread with caution.

Nifty 50 (10,530.7)

The Nifty ended the year 2017 at a record high, aided by a strong rally in December that saw the index rise 304 points or 3 per cent. Amid choppiness, the index closed on a positive note in the truncated last week, advancing 37 points or 0.36 per cent.

Short-term trend: Since the early December 2017 low of 10,033, the Nifty has been on a short-term uptrend. The index moved sideways in the previous week, testing the key medium-term resistance at 10,500. Although both the daily and weekly relative strength indices feature in the bullish zone, they lack strength. Likewise, the daily as well as the weekly price rate of change indicators hover in the positive territory, but are showing signs of weakness, signifying possibility of a near-term correction on the cards.

That said, a decisive breakthrough of current resistance at 10,500 will reinforce the short and medium-term uptrends of the index and extend the rally to 10,600 and 10,800 levels in the short term. Key immediate supports are placed at 10,400 and 10,250. A strong decline below 10,250 is needed to bring back selling pressure and drag the index lower to 10,150. The next significant support is pegged in the band between 10,000 and 10,100.

We reiterate that investors with a short-term perspective can remain invested with a stop-loss at 10,250 levels. Vital supports below the 10,000-mark are at 9,850 and 9,700 levels.

Medium-term trend: The medium-term trend continues to be up for the index. Investors with a medium-term view can remain invested with a stop-loss at 9,850 levels. Any minor corrective declines could be a buying opportunity. An emphatic upward break of the key resistance level of 10,500 can reinforce the bullish momentum and push the index northwards to 10,800 and 10,921 in the medium term.

On the other hand, a strong fall below the significant medium-term support level of 10,000 will be a threat to the uptrend. In that case, the index can decline to 9,700. A further decline below the crucial support level of 9,700 will alter the medium-term uptrend of the index. The next key base is pegged at 9,500.

Nifty Bank (25,539.4)

It was a choppy week for the Bank Nifty as well but the index moved in the other direction, declining 109 points or 0.43 per cent. The significant resistance pegged at 25,700 continues to act as a vital resistance and has capped the upside once again. The index continued to underperform the broader indices for the second consecutive week.

A decisive breakthrough of 25,700 levels can bring back bullish momentum and take the index northwards to 26,000 in the short term. Traders with a short-term horizon should continue to tread with caution. Fresh long positions are recommended only on a strong rally above 25,700 levels with a fixed stop-loss. Key resistances above 26,000 are at 26,200 and 26,300.

On the contrary, if the index plunges below the key immediate support level of 25,200, it can bring selling pressure and pull the index down to 25,000. A further plunge below this base level will alter the short-term uptrend and drag the index down to 24,800 and 24,500.

Sensex (34,056.8)

The Sensex registered an all-time high of 34,137.9 last Wednesday and turned volatile. The index managed to end on a positive note by climbing 116 points or 0.34 per cent in the previous week. The short-term trend is up for the index and it hovers well above its 21 and 50-day moving averages. Nevertheless, the index tests a significant resistance at the 34,000 mark. Inability to make a strong breakthrough of this hurdle can cause a corrective decline and the index can slip to 33,700 or even to 33,500 levels in the near term.

A conclusive breach of 34,000 can take the index higher to 34,500 and 35,000 in the medium term, with some minor whipsaws. We reiterate that traders with a short-term perspective can consider taking long positions on a strong move above 34,000 with a stop-loss at 33,600. Immediate supports for the index are at 33,700 and 33,500.

A plunge below 33,500 will be a threat to the short-term uptrend and the index can decline to either 33,200 or 33,000 levels in the short to medium term. Subsequent supports to note are at 32,600 and 32,500.

Global cues

The Dow Jones Industrial Average continued its volatile movement and fell 34 points last week to close at 24,719.

We reaffirm that the indicators and oscillators in the daily chart hover in the overbought territory, indicating that there could a corrective decline in the pipeline. Key supports for the index are placed at 24,500; 24,300 and 24,000. A strong rally above the immediate resistance at 24,800 can take the index higher to 25,000 and 25,200 levels.

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