Index Outlook: Will the rally in Sensex and Nifty 50 come to a halt?

Domestic benchmark indices witnessed a strong surge last week. The Sensex and Nifty 50 rallied over 4 per cent each negating our view of seeing a sideways consolidation.

Although both the indices closed the week on a strong note, it is the time to be cautious rather than being extremely bullish as crucial resistances are coming up for the indices that can halt the current rally and trigger a reversal.

Sectoral indices

All the sectoral indices have closed in the green last week. The BSE IT index that was beaten down the most in the week earlier outperformed others by surging 5.92 per cent last week. The BSE Metals and BSE Bankex were also up over 5.5 per cent each last week. On the other hand, the BSE Healthcare index underperformed by rising marginally by just 0.23 per cent.

FPI’s buy, that last

The Foreign Portfolio Investors (FPIs) turned net buyers (for the week) for the first time since mid-April. The FPIs bought shares worth $1,066 billion in the equity segment. Even for the month, they have turned net buyers. In July, the equity segment has seen a net inflow of $90.8 million.

If the FPIs buy in the coming week also, then it would halt the nine long months of selling spree.

Nifty 50 (16,719.45)

We had expected the Nifty to remain in a range of 15,750-16,550 and rise within this range. But the rally in the Nifty extended breaking above 16,550 last week. It made a high of 16,752.25, before closing the week at 16,719.45, up 4.18 per cent.

Graph Source: MetaStock

The week ahead: The short-term trend is up. There is room for further rise from here. But key resistances are ahead that can cap the upside. Important resistances are at 16,830 and 16,892, which can be tested in the first half of the week. We expect these resistances to hold and the Nifty to reverse lower from either of these two levels. Such a reversal can drag the index down to 16,550-16,500 initially.

The region between 16,500 and 16,480 is a strong short-term support. The index will come under pressure if it declines below this support zone. In that case, a steeper fall to 16,200 can be seen.

If the Nifty breaks above 16,892, an extended rally to 17,050-17,100 is possible.

Medium-term view: The level of 16,892 — the 8-Month Moving Average (MMA) — is a crucial resistance to watch. This has capped the upside very well in May and June. Inability to breach this hurdle will keep the broader downtrend intact. A pull-back from this resistance will have the potential to drag the Nifty down to 15,500-15,000 again by August or September. That in turn will also keep our broader bearish view of seeing 14,500-13,500 on the downside intact.

The medium-term trend will also become up only on a decisive break above the 16,892. In that case, we have to revise our view towards bullishness and 17,800-17,900 over the medium-term.

Sensex (56,072.23)

Contrary to our expectation to remain in a broad 52,000-55,500 range, Sensex has risen beyond 55,500 last week. The index has closed the week at 56,072.23, up 4.3 per cent.

Graph Source: MetaStock

Graph Source: MetaStock

The week ahead: The short-term trend is up. Although there is room to rise from here, the upside is likely to be limited. Key resistances are coming up at 56,600 and then at 56,730. We expect these resistances to halt the current rally. A reversal either from 56,600 or 56,730 can take the Sensex down to 55,300-55,000.

This region between 55,300 and 55,000 is an important near-term support. A break below it can bring the index under pressure. Such a break can drag the Sensex down to 54,000.

In case the Sensex breaks above 56,730, the upside can extend up to 57,100-57,150.

Medium-term outlook: The levels of 56,730 and 57,150 are crucial resistances to watch. The broader trend will remain down as long as the Sensex remains below 57,150. Important support is at 54,000. A break below it will bring back the danger of seeing 50,000 and 48,000 on the downside.

Sensex will have to break decisively above 57,150 to negate the fall to 50,000-48,000 and turn the medium-term outlook bullish. Such a break will open doors to revisit 60,000 levels.

Resistances to watch

16,830 and 16,892 on Nifty

56,600 and 56,730 on Sensex

36,850 and 37,400 on Nifty Bank

Nifty Bank (36,738.95)

A break above 35,550 and an extended rise towards 36,800 was seen last week. The Nifty Bank index has surged 5.93 per cent last week and has closed on a strong note. However, there are strong resistances coming up that can halt the current rally. The resistances are at 36,850 and 37,400. We expect the index to reverse either of these resistances lower. Such a reversal can take the index down to 36,000-35,800 initially. A further break below 35,800 can drag it down to 35,000-34,900 in the short-term.

Graph Source: MetaStock

Graph Source: MetaStock

It will also keep the medium-term picture weak to revisit 33,000-32,000 levels. A strong trigger will be needed for the Nifty Bank index to break above 37,400 and negate the bearish view.

Global cues

As expected, the Dow Jones Industrial Average (31,899.29) has risen towards 32,000. The index made a high of 32,219.25 on Friday. It has come off slightly from there to close the week at 31,899.20, up 5.1 per cent.

Good support is at 31,500. As long as the Dow sustains above this support, the outlook will remain bullish. However, a crucial resistance is at 32,400, which will need a close watch. Inability to break above this hurdle can drag the Dow down to 31,500 and even lower. A strong rise past 32,400 will be needed to see an extended rise to 32,800-33,000.

Published on

July 23, 2022

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