Index Outlook: Indices ruling at record highs

The Nifty and Sensex continue to trend up. But profit-taking can emerge at higher levels

The Centre’s booster shot for the banking and road construction sectors sent indices soaring to life-time highs. The ₹2.11 trillion recapitalisation plan for public sector banks and a substantial ₹6.92 trillion of investment forroad constructions, rekindled hopes of a growth revival and fresh investments. The Nifty PSU Bank index skyrocketed gaining 878 points or nearly 30 per cent in the previous week.

Both the Nifty and Sensex zoomed to record highs on Wednesday after a gap-up opening. The indices continue to inch higher amid volatility. But profit-taking or near-term dip cannot be ruled out as the indices approach the overbought territory. Investors should be vigilant as the benchmarks extend their short-term rally.

The global equity markets continue to trend upwards. The Nikkei 225 moved past the 21,000 and 21,500 levels recently. However, the index tests a key barrier at 22,000 now.

This week is crucial for the global markets, as President Trump is likely to name a new Fed Chair and Congress is set to unveil long-anticipated tax reform legislation. The Fed meeting, scheduled for October 31 and November 1, is also vital and can lend directions to the markets. The sustainability of strong gains in the dollar index and crude oil will also be keenly watched. Domestically, the October month auto sales numbers and earnings announcement will be key events to watch.

Nifty 50 (10,323)

The Nifty index rose 176 points or 1.7 per cent last week, breaching a key resistance level of 10,200.

Short-term trend: Since late September low of 9,687, the Nifty index has been in a short-term uptrend. While trending up, it emphatically breached key hurdles at 10,000 and 10,200. Moreover, the index trades well above its 21- and 50-day moving averages. There has been an increase in daily volume over the past three trading sessions.

The indicators and oscillators in the daily and weekly chart feature in the positive territory, backing the uptrend. That said, the index experiences selling pressure at higher levels during intra-day sessions and has been choppy in recent times.

Hence, traders with short-term view should tread with caution. Any sharp correction can find supports at 10,200 and 10,000 levels. As long as the index trades above the psychological base level of 10,000, the short-term uptrend will remain positive. Resumption of the uptrend can take the index higher to 10,400, 10,500 and 10,544 levels over the short term. On the other hand, if the index slumps below 10,000, the selling pressure can intensify and profit-taking can pull the index down to 9,900 and 9,700-9,750 band.

Medium-term trend: Following the strong break above the key resistance level of 10,200 last week, the index strengthened its medium-term uptrend that began from the December 2016 low. A strong rally beyond 10,544 can pave way for the index to trend upwards to 10,921 over the medium-to-long term.

However, conclusive decline below the significant medium-term support band between 9,700 and 9,750 will be a threat to the uptrend. Next key supports to note are placed at 9,500 and 9,300.

Nifty Bank (24,839.5)

The Bank Nifty gained 830 points or 3.5 per cent in the previous week, decisively breaking above the key resistance at 24,500. Nevertheless, the index encountered the key resistance in the band between 25,000 and 25,200 and tests this hurdle. Traders with a short-term view should avoid taking fresh long positions until the index decisively moves beyond 25,200.

A decisive break above 25,200 can push the index higher to 25,500 levels and then to 26,000 in the medium term. Inability to move beyond the current resistance band can pull the index down to the immediate base level of 24,500 and 24,200 in the short term. Next vital support is in the 23,800-24,000 range.

Sensex (33,157.2)

The Sensex jumped 767 or 2.4 per cent in the previous week to close at record highs, conclusively breaking above a key barrier at around 32,650. This rally has outperformed the Nifty. Short-term trend has been up for the index from the late September low at 31,081. The index hovers well above its 21 and 50-day moving averages. The daily indicators are featuring in the overbought levels and a near-term correction or pause in the trend is possible. Any corrective declines in the index can find support at 33,000, 32,650 and 32,400 in the near term. Continuation of the uptrend can push the index northwards to 33,729 and 35,000 in the short to medium term. But a downward break below the key support at 32,400 can bring back selling interest and pull the index down to 32,000 and 31,700.

Global cues

The Dow Jones Industrial Average added 105 points to close at 23,434 last week. But the index faces key resistance ahead at 23,500. A strong rally beyond this resistance can push the index higher to 24,000 in the medium term. But a downward reversal can pull the index down to 23,200 and 23,000 levels. CAC and DAX also surged last week. The Nikkei 225 tests resistance at 22,000. Failure to breach this hurdle can drag the index down to 21,700 and 21,500 levels. But a decisive rally beyond 22,000 can take the index higher to 22,250 and 22,500 levels.

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