Index Outlook: Sensex, Nifty 50: Coming closer to a crucial resistance

Sensex, Nifty 50 and the Nifty Bank indices have risen very well last week. The benchmark indices scaled new highs and have closed on a strong note. Sensex and Nifty were up over 2 per cent each. Nifty Bank index was up about 1.3 per cent.

The outlook remains bullish. Supports can limit the downside from here. There is room for more rise from current levels. However, strong resistances are also coming up for the benchmark indices which might halt the current rally. We see high chances for the Sensex, Nifty 50 and the Nifty Bank indices to run into a correction after some more rise from current levels.

Among the sectors, the BSE IT and BSE Oil & Gas indices outperformed last week. They were up 2.15 per cent and 2.11 per cent respectively. The BSE Realty and BSE Metals index were the outperformers. The indices were down 2.36 per cent and 2.03 per cent respectively.

FPI flows

The foreign portfolio investors (FPIs) bought Indian equities for the third consecutive week. The equity segment saw a net inflow of $1.72 billion last week. For the month of June, the FPIs have pumped in about $3.18 billion into Indian equities. Continuing flows can support the Sensex and Nifty to make more new highs, going forward.

Nifty 50 (24,010.60)

Nifty broke the resistance at 23,650 and rose towards 24,100 as expected. The index touched a new high of 24,174 on Friday and has come down slightly from there. It has closed the week at 24,010.60, up 2.17 per cent.

Short-term view: The outlook is positive. Supports are at 23,800 and 23,700. Below that 23,500-23,450 is the next strong short-term support. We expect the Nifty to sustain above the 23,800-23,700 support zone itself. A test of this support initially this week is a possibility.

A bounce from the 23,800-23,700 support zone can take the Nifty up to 24,100-24,200 this week. A break above 24,200 can see an extended rise to 24,450.

In case the Nifty breaks below 23,700, a fall to 23,500 can be seen. But such a fall looks less probable.

Chart Source: MetaStock

Medium-term view: The current rally could be coming close to a top now. Strong resistances are at 24,450 and 24,600, which can halt the current rally. We expect the Nifty to reverse lower either from 24,450 itself or from around 24,600 and see a corrective fall. Such a reversal can take the Nifty down to 23,500 initially. A break below 23,500 will intensify the sell-off and can drag the Nifty down to 22,000 and even lower over the medium term.

Nifty Bank (52,342.25)

As expected, the Nifty Bank index broke above 52,000 and surged towards 53,000. The index made a new high of 53,180.75 and has come down from there towards the end of the week. Nifty Bank index has closed at 52,342.25, up 1.32 per cent.

Short-term view: Immediate support is at 52,150. Need to see if the index is sustaining above this support or not. A bounce from around 52,150 will keep the broader bullish view intact. Such a bounce can take the Nifty Bank index up to 53,350-53,500 initially. A further break above 53,500 will then open the doors for an extended rise to 54,000-54,500.

In case the Nifty Bank index breaks below 52,150, it can fall to 51,000 and even 50,500 this week.

Chart Source: MetaStock

Medium-term outlook: The broad region between 53,500 and 54,500 is a very crucial resistance zone for the Nifty Bank index. One more leg of rise to test this resistance zone is a possibility in the short term. But a failure to breach 54,500 and a turnaround from there can trigger a corrective fall towards 52,000-51,000. A break below 51,000 will see the fall extending towards 49,000-48,000. Such a fall will be a very good buying opportunity from a long-term perspective.

In case Nifty Bank index manages to breach 54,500 and sustains above it, that would retain the bullish momentum. In that case, a rise to 56,500 can be seen first and then the corrective fall can happen.

Sensex (79,032.73)

The break above 78,000 and the rise to 79,000 happened last week in line with our expectation. Indeed, the Sensex rose well beyond 79,000 and made a new high of 79,671.58. The index has come down slightly from this high and has closed the week at 79,032.73, up 2.36 per cent.

Short-term view: The outlook is positive. Strong support is in the 78,200-78,000 region, which is likely to limit the downside this week. A rise to 80,500-80,550 is possible this week. A break above 80,550 can see a extended rise to 82,000 in the short term.

In case the Sensex declines below 78,000 from here, a fall to 77,000 can be seen. Thereafter, the index can rise back again targeting 80,000 and higher levels.

Chart Source: MetaStock

Medium-term view: The region around 82,000 is a very strong resistance. The current rally in the Sensex is likely to halt around 82,000. A corrective fall from around 82,000 can drag the Sensex down to 78,000-77,000 in the coming months. Such a fall will be a very good buying opportunity from a long-term perspective.

Levels to watch

Nifty: 24,450-24,600

Sensex: 82,000

Nifty Bank: 53,500-54,500

Dow Jones (39,118.86)

After beginning the week on a positive note, the Dow Jones Industrial Average lost momentum. The index rose to a high of 39,571.23 on Monday and then fell back. Thereafter, the index remained stable, and range bound between 38,900 and 39,450 for the rest of the week.  It has closed the week on a flat note at 39,118.16.

Chart Source: MetaStock

Outlook: The immediate outlook is unclear. Cluster of supports are there in the 38,900-38,800 region. As long as the Dow stays above this support zone, the bias will remain positive. A decisive break above 39,500 will boost the momentum. Such a break can take the index up to 40,000-40,100 in the short term.

The near-term outlook will turn negative only if the Dow declines below 38,800. If that happens, a fall to 38,600 can be seen first. A break below 38,600 can drag the Dow Jones down to 38,000.