Sunday, March 13, 2016

Index Outlook: Indices poised to rise

Following a strong post-Budget rally, the equity market began the truncated week on a flat note and the bellwether indices — the Sensex and Nifty 50 — ended the week with marginal gains.

They seemed to be taking a breather last week after the sturdy up-move from their 52-week low that was led predominantly by banking stocks. Foreign portfolio investors (FPIs) continued to be net buyers in the equity market.

The Centre was in an over-drive, passing a slew of legislations including the Real Estate Bill and changes to oil exploration policy. Globally, the European Central Bank surprised investors with the announcement that it will start buying corporate bonds to boost credit markets. This week, the Bank of Japan announces its interest-rate policy after a two-day meeting on Tuesday.

The Index of Industrial Production (IIP) data released for January is disappointing. It remained in the negative zone; contracting 1.5 per cent. This increases hope of a rate cut.

Nifty 50 (7,510.2)

The Nifty was choppy and moved in the 7,424-7,547 range last week and closed on a positive note by inching-up 25 points. The index tests a key resistance at 7,500. This appears to be a consolidation after a sharp rally.

The week ahead: The index vacillated at around 7,500 and was able to sustain above its 50-day moving average. A positive start to the week can take the index higher to the immediate target of 7,600 and then 7,675.

The Nifty has key immediate supports at 7,400 and 7,388 — 50-day moving average. Next supports are at 7,300 and 7,250. Corrective declines can find support at these levels.

Traders with a short-term perspective can continue to hold their long positions as long as the index hovers above 7,100. Only a strong close below 7,100 will alter the near-term trend downwards. Subsequent supports at 7,000 and 6,870 will then come to play.

Medium-term trend: Strong rally with an upward gap in the first week of March and the index sustaining above 7,400 in recent weeks are positives. An emphatic rally beyond the immediate resistances can take the index higher to the key medium-term resistance level of 7,750. However, failure to breakthrough this level the can make the index volatile. A strong break-out can take it further higher to 8,000 and 8,270 in the medium term. Key support from a medium-term perspective is at 7,000.

Sensex (24,717.9)

The index traded sideways in a narrow band between 24,451 and 24,820 and closed, advancing 71 points or 0.3 per cent in the prior week.

The week ahead: Strong move by the Sensex above the key resistance of 24,000 and its 50-day moving average are encouraging. It has managed to stay above these levels last week. It now tests a resistance at 24,700.

Moreover, the index has next crucial resistance at 25,000. A positive start to the week can help the index decisively move past these hurdles. This can also have a psychological effect and attract fresh buyers.

Next resistance to watch out is at 25,500. Inability to exceed this can keep the index between 22,500 and 25,500 for a while. An emphatic move above 25,500 can take it up to 26,300 and 27,200. Support below 24,000 is at 23,000.

Bank Nifty (15,168.2)

The Bank Nifty found support at around 13,520 in late February. After recording a 52-week low at 13,407, the index bounced up sharply. This reversal is also triggered by a positive divergence in the daily relative strength index.

Though the index breached a key resistance at 14,500, it encountered a hurdle at around 15,500. The index has been moving sideways between 15,000 and 15,500 over the past one week. Within this range, it slipped 171 point or 1.1 per cent to close the week at 15,168. The index has immediate supports at 15,000 and 14,765.

As long as the index trades above the second support, traders can hold their long positions. But a decisive fall below 14,765 can mitigate the near-term bullish momentum and drag the index down to 14,500 and then to 14,000 in the short term.

An upward resumption and a breach of 15,500 will reinforce the bullish momentum and take the index up to 16,000 or 16,250.

Global cues

The US indices, Dow and S&P 500 closed at a new 2016 high, while European and Asian markets ended on a mixed note. On Friday, the Dow advanced 1.3 per cent to close at 17,213 as investors accepted ECB’s steps. The index has also moved above its 200-day moving average and closed at a 2016 high.

It is now heading towards 18,000. However, inability to maintain the rally and a slump below 17,000 can drag it down to 16,400 or 16,100.

The rally in the crude oil also helped the US indices move higher. Last week, the crude oil gained 7 per cent to close at $38.5 a barrel.

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