Index Outlook: Indices in a reversal mode

The Nifty and the Sensex reversed direction, sending bearish message to investors

The domestic equity markets were weak last week as the bellwether indices plunged due to concerns overfiscal deficit and rising crude oil prices. The data realised last Thursday reported that the India's gross domestic product rose 6.3 per cent in July-September quarter, which was in line with expectations. But the fiscal deficit reaching 96 per cent of the budgeted target for the fiscal year ending March 2018 brought bearish sentiment to the fore. In the week ahead, the Reserve Bank of India (RBI) policy meeting will set the tone for stocks. Fall in US markets can trigger weakness in the global equity markets.

Nifty 50 (10,121.8)

The Nifty index did a volte-face from 10,400 levels in the early part of last week, before testing the key hurdle in the 10,450-10,500 range. The index plunged sharply thereafter and closed the week by tumbling 267 points or 2.6 per cent.

Short-term trend: The index’s short-term uptrend lost bullish momentum at 10,400 and reversed direction last week. The relative strength index and price rate of change indicator in the daily chart have also turned bearish, as the index witnesses selling pressure at higher levels. The Nifty index has decisively breached its 21- and 50-day moving averages and hovers well below them. The daily RSI has entered the bearish zone from the neutral region and the weekly RSI has entered the neutral region from the bullish zone.

The short-term uptrend that commenced from the September low of 9,687 is under threat. The index trades slightly above the key support band between 10,000 and 10,050. An emphatic downward breakthrough of this support can bring back further selling pressure and pull the index down to 9,900 and to the next base in the band of 9,700-9,750 in the short term. That said, the immediate significant support in the 10,000 and 10,050 band can provide a temporary base for the index in the coming week, before setting a clear short term direction.

Rebounds from this support can encounter resistances at 10,200 and 10,300 levels. Strong rally beyond 10,300 can test the vital resistance level of 10,400 once again. Further rally beyond 10,500 is needed to strengthen the uptrend and take it higher to 10,544 and 10,600 in the short term. Next resistances could at 10,600 and 10,700.

Medium-term trend: Last week, the index fell short of testing a key medium-term resistance at 10,500 and reversed direction. An emphatic downward breakthrough of the key medium-term psychological support level of 10,000 can reinforce the bearish momentum and pull the index down to test the vital support zone of 9,700 and 9,750. Only a conclusive tumble below 9,700 will be threat to the medium-term uptrend that is still in place. Next key supports to note are pegged at 9,500 and 9,300 levels. Conversely, an emphatic break above key barrier at 10,500 can take the index northwards to 10,921.

Nifty Bank (25,191.9)

The resistance at 25,800 has turned into a key barrier for the Bank Nifty after limiting the uptrend last week. The index fell 587 points or 2.3 per cent, breaching the key immediate supports at 25,600 and 25,500 in the previous week. It has also breached its 21-day moving average and trades well below this average line. This downward reversal is triggered by negative divergence in the weekly relative strength index and daily price rate of change oscillator. These indicators are charting downwards, implying weakness.

The index now tests next key support level at 25,200. Strong plunge below this level can pull the index down to 25,000 in the coming week. The short-term uptrend that has been in place since late September will be altered if the index conclusively declines below 24,700 levels. On the other hand, any corrective rally in the Bank Nifty may encounter resistances at 25,500 and 25,600 levels. Further rally beyond 25,600 can take the index higher to the vital resistance level of 25,800. Subsequent resistance is placed at 26,000.

Sensex (32,832.9)

Last week, the Sensex tested significant resistance at 33,700 and changed direction. The index fell 846 points or 2.5 per cent, breaching a key support at 33,200 as well as its 21-day moving average. Moreover, the index has closed below a vital support level of 33,000, implying that further decline ispossible. Nevertheless, it has a significant support at 32,700 and the crucial support at 32,400, which is a trend-deciding level that could buttress the decline in the short term. A decisive fall below this level will mar the short-term uptrend and pull the index down to 32,000 and 31,700. Conversely, if the index rebounds from the current support level, it can face resistances either at 33,000 or 33,300 in the coming week. Further rally above 33,300 can take the index higher to 33,700. Key medium-term resistances above 33,700 are at 34,000 and 34,500.

Global Cues

It was a memorable week for the Dow Jones Industrial Average as the index surged above the 24,000-mark for the first time and closed above it. It gained 673 points or 2.8 per cent to close at 24,231.5. The US markets witnessed strong broad market rally while the European markets ended in negative and Asian stocks closed on mixed note. The Dow Jones now trades at overbought territory and a downward reversal can’t be ruled out in the near term. Key supports are at 24,000, 23,800 and 23,600 levels. Resistances are placed at 24,330 and 24,500.

The Nikkei 225 managed to surpass the crucial resistance at 22,500 last week by climbing 268 points to close at 22,819. It tests the next hurdle at 23,000. A rally above this level can take it to 23,350 and 23,500. Supports are at 22,500, 22,250 and 22,000.

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