Witnessing selling interest at higher levels, the bellwether indices — the Sensex and the Nifty 50 — slumped marginally last week. But the week ahead is going to be crucial for the indices — it set a near-term direction.
The Q2 earnings announcement of bluechip companies can also provide some path.
On the global front, China’s GDP data, PMI data from the European Union and Japan, along US economic data are key events to note in the coming week.
Nifty 50 (11,762.4)
The Nifty 50 index retreated 151 points, or 1.27 per cent, last week after encountering a key resistance at 12,000. This level will continue to act as a significant resistance in the near future.
Week ahead: The short-term uptrend in the index that had commenced from the late September at around 10,800 encountered a significant resistance at 12,000 last week.
On Thursday, the index plummeted sharply, forming a bearish engulfing candlestick pattern, which is a bearish reversal pattern.
But the index bounced up slightly on Friday without providing confirmation of the pattern.
Resumption of the downmove will indicate a confirmation.
An emphatic fall below the immediate support level of 11,600 will bring back selling interest and profit-booking, leading to further decline. In that case, the index can fall below the 21- and 50-day moving averages poised at around 11,450, and decline to 11,200 over the short term.
A fall below these moving averages will mitigate the upmove that had commenced from the September ebb. A further slump below 11,200 will drag the index down to 10,800 levels once again.
The daily relative strength index (RSI) has entered the neutral region from the bullish zone and the weekly RSI is on the verge of entering the neutral region from the bullish zone. Both the daily as well as the weekly price rate of change indicators are charting downwards in line with the price.
On the upside, a conclusive breakthrough of 12,000 is required to take the index northwards to 12,200 and then to 12,400 levels over the short term.
As mentioned last week, if the index fails to break above 12,000, a decline to 11,750 and then 11,600 is possible. The index has reached 11,750 and is likely to test the next support at 11,600. If the key base level of 11,600 holds, we restate that the index can consolidate sideways in the band between 11,600 and 12,000 for a while before taking a clear direction.
But a decisive fall below the vital base level of 11,600 can pull the benchmark index down to 11,400 and then to 11,200. The next supports are at 11,150 and 11,000. The short-term uptrend will remain intact as long as the index hovers above the psychological support level of 11,000.
Medium term: The medium-term trend has been up since the March low of 7,511. Nevertheless, the index tested a key hurdle at 12,000, a psychological level, last week and slightly declined.
Immediate supports are placed at 11,500 and 11,000. The second support can provide cushion for the index. That said, if the index declines below 11,000, the medium-term uptrend will begin to experience weakening and the next medium-term support levels at 10,600 and 10,200 will come into play. Further decline below the strong support level of 10,000 can drag the index down to 9,800 and then to 9,600 over the medium term.
On the upside, a conclusive break above the key barrier at 12,000 can reinforce the uptrend and push the index northwards to a lifetime high of 12,430, and subsequently, it can record a new high over the medium term.
The Sensex fely 526 points, or 1.3 per cent, last week, on the back of selling interest and profit-taking. A key resistance at 41,000 capped the rally.
We reiterate that a conclusive rally above 41,000 levels can push the index northwards to 41,700 and then to 42,000 over the short to medium term. Near-term resistances are at 40,000 and 40,500.
Continuation of the downmove can drag the index lower to the immediate support level of 39,500. A decline further below this base can pull the Sensex down to 39,000 over the short term.
We reaffirm that as long as the Sensex trades above the vital support level of 38,000, the near-term trend will remain optimistic. But a conclusive slump below this base can pull the index lower to 37,500 and then to 37,000.
The short-term trend will remain up for the index as long as it trades above the trend-deciding level in the 36,500-36,600 band.
The next crucial support is placed at 36,000.
Investors with a long-term perspective can remain invested with a stop-loss at 35,000.
Nifty Bank (23,533.3)
Last week, the Nifty Bank index was choppy — testing a key hurdle at 24,000, it slipped 313 points, or 1.3 per cent. The index broadly moved in the band between 23,000 and 24,000.
As long as the index trades in this band, the near-term stance remains neutral, and traders should avoid taking fresh positions.
A strong decline below the 23,000 can reinforce bearish momentum and drag the index down to 22,500 and then to 22,000.
In that scenario, traders with a short-term view can initiate fresh short positions with a stop-loss at 23,100 levels. The next supports below 22,000 are placed at 21,500 and 21,000.
Conversely, although the index trades well above the 21- and 50-day moving averages, it continues to tests a crucial resistance at 24,000. A strong break above this barrier will strengthen the bullish momentum and take the index higher to 24,500 and then to 25,000 in the coming trading weeks. In that case, traders can take fresh long positions above 24,000 levels with a fixed stop-loss.
Amid volatility, the Dow Jones Industrial Average climbed 19 points to close at 28,606.
Though the near-term trend is up for the index, it faces a crucial resistance at 29,000.
An emphatic break above this barrier is required to strength the uptrend and take the index northwards to 29,200 and then to 29,500 levels. A decisive fall below the immediate base level of 28,000 can drag the index lower to 27,500 and then to 27,000 levels over the short term.