Index Outlook: Indices await a clear direction

A weak bounce-back increases the likelihood of a corrective fall in the coming weeks

The Indian benchmark indices opened the week on a weak note as geoplitical tensions after North Korea’s nuclear test kept the market on tenterhooks. However, the indices remained within a narrow range thereafter and have closed marginally lower for the week.

The Nifty 50 and the Sensex closed at 9,934.8 and 31,687.5 respectively, down 0.4 per cent and 0.64 per cent for the week.

The bounce-back move, that has been in place since the third week of August, clearly lacks strength.

Coupled with the ongoing geopolitical tensions, the sell-off from Foreign Portfolio Investors (FPIs) is capping the upside in the benchmark indices.

The FPIs have been on a selling spree in the Indian equity segment since August. They sold $2.2 billion in August and the sell-off has extended this month as well.

The FPIs sold $462 million so far this month. Brisker selling from the FPIs in the next few weeks may cap the upside and increase the possibility of a further fall in the indices.

Nifty 50 (9,934.8)

The Nifty 50 is stuck in a narrow range between its support at 9,860 and resistance at 10,000. A breakout on either side of this range will decide the short-term trend. A strong break above 10,000 can take the index higher to 10,100 or 10,150. On the other hand, if Nifty 50 declines below 9,860, it can come under more selling pressure. Such a break can take it lower to 9,800 initially. A further break below 9,800 can drag it to 9,700 thereafter.

Short-term traders with a high risk appetite can initiate short positions on a decisive break below 9,860 with a stop-loss at 9,920 for the target of 9,730. Revise the stop-loss lower to 9,850 as soon as the index moves down to 9,810.

Medium-term view: As long as the index trades below 10,100, a corrective fall in the coming weeks cannot be ruled out. The 21-week moving average at 9,665 is a key support to watch. A strong weekly close below this support can take the index lower to 9,450 initially. This will confirm that the index has entered the correction phase. A dip even below 9,450 will increase the likelihood of the fall extending to 9,280-9,250 or even 9,150 over the medium term. Nifty 50 will regain momentum only if it records a strong weekly close above 10,150. Such a break will enhance the possibility of the index rising to new highs.

Nifty Bank (24,370.8)

The Bank Nifty hovers above the 55-day moving average (24,122) in a narrow range. A fall below this support can take the index lower to 23,850 initially. And a fall below 23,850 can drag it to 23,600 or 23,550 thereafter.

The key resistance is at 24,500. A decisive close above this hurdle can boost the momentum and take the Bank Nifty to 25,000 or even higher levels. Traders with high risk appetite can go short on the Bank Nifty on a fall below 24,100. Stop-loss can be placed at 24,250 for the target of 23,850. Revise the stop-loss lower to 24,000 as soon as the index reaches 23,900.

Sensex (31,687.5)

Sensex is stuck in a narrow range between 31,100 and 32,000. A breakout on either side of 31,100 or 32,000 will decide the next move. A break above 32,000 can take the Sensex higher to 32,700. On the other hand, a break below 31,100 can drag it to 30,800.

Medium-term view: The level of 30,800 is a key support to watch. A strong break below it might trigger a sharp fall on the back of profit-booking. Such a break can drag the Sensex lower to 29,600 and 29,450 over the medium term.

Global cues

Among the major global indices, Japan’s Nikkei 225 (19,274.8) is looking weak. The index has been under pressure on the back of the geo-political tensions caused by North Korea. Nikkei 225 tumbled over 2 per cent last week. The outlook is bearish with strong resistances at 19,400, 19,500 and then at 19,735. A fall to 18,850 or even 18,500 is possible in the coming weeks

The Dow Jones Industrial Average (21,797.8) hovers above a key support level of 21,700. A break below it can drag the index lower to 21,500 or 21,400.

Resistance is at 22,000. A decisive close above this hurdle is needed for the index to gain fresh momentum. Such a break will increase the likelihood of the index moving up to 22,400 and 22,500 thereafter.

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