The domestic equity indices, the Sensex and the Nifty, were volatile in the past week, tracking global markets that declined on hawkish comments from US Federal Reserve Chairman Jerome Powell.
This week, the global markets could remain choppy, which will keep the local indices also under pressure. Investors should tread with caution as the benchmark indices are trading at crucial trend-deciding levels.
Nifty 50 (9,972.9)
The Nifty 50 index slumped below a key support, retracing the rally of the previous week. But on Friday, the index found support at 9,544 and bounced up strongly. The 21-day moving average also cushioned the index at this level. Still, the index closed the week in the negative, declining 1.7 per cent.
The week ahead: After tumbling below the key support levels of 10,000 and 9,800; the Nifty index found support at around 9,600 on Friday. Though the short-term uptrend that has been in place since the index took support at around 8,800 in mid-May is intact, it is losing steam now.
The index has a significant resistance in the band between 10,000 and 10,200. A decisive break above this barrier will pave the way for an up-move to 10,335 and then to 10,500 levels in the coming weeks.
Nevertheless, the inability to move beyond 10,200 will keep the index moving sideways between 9,800 and 10,200 for a while. The daily relative strength index (RSI) is likely to re-enter the bullish zone from the neutral region, while the weekly RSI hovers in the neutral region. The daily price rate of change indicator is losing strength despite hovering in the positive terrain.
A slump below the immediate base level of 9,800 can once again drag the index lower to 9,600 levels. A further decline under 9,600 will change the short-term uptrend and drag the index down to 9,400 and 9,000 levels. The medium-term uptrend will stay intact as long as the index trades above 8,800 levels. A decisive plunge below 8,800 can bring forth selling interest and the index can chart downwards to 8,400 and 8,200 levels.
Medium term: There is no major change in the medium-term trend which is currently up for the index. That said, it continues to test a vital resistance in the band between 10,000 and 10,200. A strong break above this zone can push the index higher to 10,500 over the medium term.
The subsequent key resistances are placed at 10,750, 10,830 and 11,000 levels.
On the downside, a decisive plunge below 8,800 will negate the medium-term uptrend and drag the index lower to 8,400 or 8,000 levels.
Sensex (33,780.8)
Last week, the Sensex declined 506 points, or 1.5 per cent, amid volatility. The on-going decline appears to be a corrective fall as long as the index trades above the 33,000 level. The Sensex faces a vital resistance at 34,500.
An emphatic break above this barrier will reinforce the bullish momentum and push the index northwards to 35,000 initially and then to 35,500 levels.
The next key medium-term resistance is at 36,000.
Conversely, if the index slumps below the immediate base level of 33,000, it will bring back selling interest and drag the index down to 32,000. The short-term uptrend will remain intact as long as the index trades above 32,000-mark.
A tumble below this level can pull the index lower to 31,000 and then to 30,000. The medium-term trend will be up as long as the index hovers above 30,000. The key supports below this level are at 29,500 and 29,000. Investors with a long-term view can stay invested with a stop-loss at 29,500.
Nifty Bank (20,654.5)
In the midst of choppiness, the Nifty Bank fell 379 points, or 1.8 per cent, in the past week.
The key medium-term resistance in the band between 21,000 and 21,500 had limited the upside recently. The index is likely to test this resistance once again in the coming week. We reiterate that a decisive break above this hurdle will bring back bullish momentum and take the index northwards to 22,000 and then to 23,000 over the medium term with a likely small pause at around 22,500 levels.
A strong plunge below the immediate base level of 20,000 can drag the index down to 19,500 and then to 19,000 in the ensuing weeks. The Nifty Bank is currently poised in a sideways zone between 20,000 and 21,500.
As long as it trades within this range, traders should tread with caution. Fresh long positions can be initiated with a fixed stop-loss on a strong rally above 21,500 levels. On the other hand, as long as the index trades above 19,000 levels the short-term uptrend that commenced from the May low of 17,105 will stay intact.
A plunge below this base can pull the index lower to 18,500 and then to 18,000 levels.
Global cues
After an initial rally to the resistance level of 27,500, the Dow Jones Industrial Average began to decline on the back of selling interest. It nosedived 1,505 points, or 5.5 per cent, to close at 25,605 levels.
The index is poised above a vital base level of 25,000. An emphatic plunge below this base can bring back selling pressure and pull it lower to 24,500 and then to 24,000 levels in the short term.
On the upside, a strong rally above the immediate resistance level of 26,300 is needed to reinforce bullish momentum and take the index higher to 26,500 and then to 26,800. The next vital resistance is at 27,000.