Index Outlook: Will indices run into consolidation?

The Indian benchmark indices fell gradually and have closed on a mixed note last week. Sensex and Nifty 50 were down 1.32 and 1.06 per cent respectively. Though they were threatening for a steeper fall, the bounce on Friday has given some relief. Additionally, both Sensex and Nifty 50 are holding well above their near-term supports, which still keeps alive the chances of seeing a rise. Broadly, it looks like we may get into a sideways consolidation phase going forward before a clarity is obtained.

Among the sectors, the BSE Power index surged the most by 4.54 per cent last week. The BSE IT index was beaten down the most. The index was down 5.82 per cent.

The Foreign Portfolio Investors (FPIs) continue to sell at a slower pace. They sold $ 418.77 million in the Indian equity segment last week.

Nifty 50 (16,049.20)

Contrary to our expectation, Nifty fell below 16,000 last week and made a low of 15,858.2 on Thursday. However, the bounce and close above 16,000 on Friday has given some relief. The index has closed the week at 16,049.20, down 1.06 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: The bounce last week has happened from a key support. The region between 15,850 and 15,800 is significant support that has held very well. The 21-Day Moving Average (DMA) is also in this region at 15,817. Below 15,800, the next important support is poised at 15,750.

Immediate resistance is at 16,100-16,150. Nifty is likely to gain momentum only on a break above 16,150. Such a break can take it up to 16,300 initially and then to 16,500-16,550 eventually.

However, the price action on the weekly chart is giving out a mixed signal. It indicates that Nifty can run into a broad sideways consolidation. The possible ranges are 15,850-16,300 (narrow) and 15,750 to 16,550. The chances of a rise within this range in the coming week cannot be ruled out. However, a strong trend will be established only on a breakout on either side of 15,750 or 16,550.

Trading strategy: The stop-loss at 15,930 on the long positions recommended last week has been hit. We prefer to stay out of the market.

Medium-term outlook: The 13-month moving average at 16,808 is a crucial resistance to watch. Inability to breach this hurdle will keep the broader trend down. As such, our broader bearish view of seeing 14,500-13,500 on the downside will remain intact as long as the Nifty trades below 16,808. Important support to watch is at 15,750. A break below 15,750 will bring back the danger of seeing 14,500-13,500 on the downside.

Only a break above the 13-month MA will negate the bearish view. Such a break will open doors for a rise to 17,500-17,700.

Sensex (53,760.78)

Sensex fell breaking below the support at 53,800 and made a low of 53,163.77 on Thursday. However, it managed to bounce back on Friday and has closed the week at 53,760.78, down 1.32 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: Support for the Sensex is at 53,150-53,100. The next significant one is at 52,900. Resistance is at 54,200. Sensex has to break 54,200 decisively to become gain bullish momentum. Such a break can take it up towards 55,000-55,500 in the near term.

On the weekly chart, lower supports are available in the 52,300-52,000. So broadly we can look for a range of 53,900-54,200 (narrow) or 52,000-55,500 (broad) for some time. A breakout on either side of 52,000-55,500 will then determine the next direction of move.

Medium-term outlook: The crucial resistance to watch will be 55,500. Sensex has to surpass this hurdle to negate our overall bearish view of seeing 49,000-48,000 on the downside. Such a break will increase the chances of the index revisiting 60,000 levels.

However, inability to break above 55,500 and a reversal in the coming weeks will keep alive the danger of the fall to 49,000-48,000. Important support to watch will be 52,000. A break below this support can trigger the fall.

Nifty Bank (34,682.65)

The break above the resistance at 35,290 witnessed initially last week failed to sustain. The Nifty Bank index made a high of 35,543 and has come-off sharply from there. The index has closed at 34,682.65, down 1.26 per cent for the week.

What to watch

15,750-16,550 range on Nifty

52,000-55,500 range on Sensex

34,000-35,550 range on Nifty Bank

There is room for further fall towards 34,200 and 34,000. Thereafter it will have to be seen if it manages to reverse higher again or not. Resistances are at 35,150-35,200 and 35,500-35,550.

Chart Source: MetaStock

Chart Source: MetaStock

Broadly, we can look for a range of 34,000-35,500 / 35,550. A decisive rise past 35,550 will be needed to gain fresh momentum and rise to 36,800-37,000.

The 100-Week Moving Average (WMA) at 33,624 is a crucial support to watch below 34,000. A fall below the 100-WMA will be bearish to drag the Nifty Bank index down to 33,000 and 32,000 levels.

Global cues

The Dow Jones Industrial Average (31,288.26) fell sharply during the week to make a low of 30,143.93 on Thursday. However, the index witnessed a strong recovery on Friday recouping almost all the losses made during the week. The Dow has closed the week at 31,288.26, down marginally by 0.16 per cent.

On the weekly chart, the long wicks over the last three weeks indicate the presence of buyers in the 30,500-30,000 region. This keeps the chances of seeing a rise in the coming days alive.

Immediate resistance is at 31,600. A break above it can take the Dow up to 32,000-32,350. On the other hand, inability to breach 31,600 can keep the Dow in a range of 30,000-31,600 for some time. In that case, the bias will remain negative to break 30,000 and fall to 29,500-29,000 and even lower from here itself.

From a big picture perspective, 32,000-32,350 is a strong resistance. The Dow has to break above this hurdle to turn the outlook bullish completely. As long as the index stays below 32,350, the broader view will remain bearish and a fall to 29,000 and lower levels cannot be ruled out.

Published on

July 16, 2022

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