Nifty 50, Sensex Indicates A Trend Reversal

Nifty 50, Sensex and the Nifty Bank indices witnessed a strong surge last week. Nifty and Sensex were up over 4 per cent. Nifty Bank index on the other hand rose over 5 per cent.

On the short-term chart, Sensex and Nifty are showing clear signs of a trend reversal. A strong follow-through rise above the upcoming resistance from here, and a decisive close for the month this week will confirm the same. In case the indices fail to breach the resistance and turns down, they can run into a sideways consolidation for some time. Broadly the charts show that the correction has come to an end and the Indian benchmark indices could be gearing up to see a rally for the rest of the year. Whether the rally can happen from here itself or after some sideways consolidation for some time will have to be seen.

All the sectoral indices ended in green last week. The BSE Realty, BSE Healthcare and BSE Capital Goods indices surged over 7 per cent each and outperformed other sectoral indices.

Slowing down

Foreign Portfolio Investors (FPIs) seems to have slowed down the pace of their selling. The Indian equity markets witnessed a net outflow of about $194 million last week. For the month of March, the net outflow stands at $3.63 billion.

The FPI action in the coming weeks will need a close watch. If their selling stops and they start to buy equities, then that could give a boost to the Sensex and Nifty to go up in the coming months.

Video Credit: Businessline

Nifty 50 (23,350.40)

Nifty surged breaking the key resistance levels of 22,650 and 22,850. Indeed, it rose well beyond our expected level of 23,100. The index touched a high of 23,402.70 before closing at 23,350.40, up 4.26 per cent for the week.

Short-term view: Immediate support is at 23,100. Below that, 22,700 and 22,500 are the next critical supports. We expect the Nifty to sustain above 23,100 or 22,700 itself.

A rise to 23,700-23,800 is possible in the near term. The price action thereafter will need a close watch. If Nifty manages to breach 23,800 and sustains higher, an extended rise to 24,100 can be seen in the short term.

But failure to breach 23,800 and a reversal thereafter can drag the index down to 23,100-23,000 initially and even lower thereafter.

So, the price action around 23,700-23,800 will need a close watch this week.

Chart Source: TradingView

Medium-term view: There is an early sign of a trend reversal on the short-term charts. But a decisive break and a monthly close above 23,800 would be needed to confirm the same.

If Nifty sustains below 23,800, there is a danger of falling back to 22,500 and lower. In that case, we can expect a broad sideways range of 21,900-23,800 for another month or two.

However, broadly the charts show that the correction has come to an end. So, eventually we can expect the Nifty to breach 23,800. Such a break will clear the way for a rise to 25,000-26,000 in the coming months. It will also bring back our earlier bullish view of seeing 28,000-28,500 again.

Overall, the outlook is bullish. Whether the fresh leg of rally is going to happen from here itself or after a few months of sideways consolidation remains a question.

Nifty Bank (50,593.55)

Nifty Bank index rose breaking above the resistance at 49,000. The index rose well beyond 50,200 to touch a high of 50,672.15. Nifty Bank index has closed the week at 50,593.55, up 5.27 per cent for the week.

Short-term view: The outlook is bullish. Support is at 49,980. Resistance is around 51,000. The bias is positive to breach 51,000 in the coming days. Such a break can take the Nifty Bank index up to 52,500-52,800 in the short term.

The outlook will turn negative only if the index declines below 49,980. If that happens, we can see a fall to 49,000-48,000 again. But such a fall looks less likely. The rise last week looks very strong. So, we expect the Nifty Bank index to sustain above the support at 49,980.

Chart Source: TradingView

Medium-term view: The index is getting strong support in the 48,000-47,700 region itself. The rise to 53,000 that we have been mentioning may happen now. The region between 53,000 and 53,200 is a key resistance zone. A strong monthly close above 53,200 and then a subsequent rise past 54,000 will boost the bullish momentum. That will strengthen the case for a rise to 58,000-58,500 which we have indicated at the beginning of this year.

As we have been mentioning over the last few weeks, 46,600 is a crucial support. The index has to fall below it to negate the aforementioned bullish view.

Sensex (76,905.51)

The break above 75,100 and a rise to 76,500 happened last week. Indeed, the Sensex surged well beyond 76,500 and touched a high of 77,041.94. The index has closed the week at 76,905.51, up 4.17 per cent.

Short-term view: Immediate support is at 76,000. Below that 75,000 and 73,500 are the next strong support. Resistances are at 77,400 and 78,200-78,400. Sensex can test these resistances this week.

If it manages to breach 78,400, an extended rise to 79,100-79,200 can be seen. But a reversal failing to breach 78,400 can drag the Sensex down to 76,000 and even 75,000 again.

Chart Source: TradingView

Medium-term view: The broader picture is bullish. Sensex is getting strong support around 73,000 itself. That keeps alive the chances of seeing a rise to 80,000 that we have been hinting at for some time.

As we have been mentioning over the last few weeks, 71,000-70,700 is the crucial support zone. Sensex has to decline below 70,700 to negate the aforesaid rise to 80,000.

Dow Jones (41,985.36)

The corrective rise to 42,000-42,100 mentioned last week has happened. The Dow Jones Industrial Average rose to a high of 42,250.29 and has closed the week at 41,985.36, up 1.2 per cent.

Chart Source: TradingView

Outlook: The Dow Jones seems to be not getting a strong follow-through rise above 42,000. Resistance is in the 42,000-42,200 region. As long as the index stays below this resistance zone, the broader bearish bias will remain intact. We expect the Dow to fall back to 40,000-39,000 in the coming weeks.

A decisive rise above 42,200 will negate this bearish view. If that happens, we can get a rise to 43,400-43,500 and higher levels.