Index outlook: Monsoon hopes lift indices ::BL

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The Nifty and Sensex shrugged off the blues and ended the truncated week on a stupendous note, thanks to forecast of an above-normal monsoon and favourable marcoeconomic data.

Strong global cues fuelled by a rally in crude prices also cheered the market.

Both the indices gained 1.5 per cent and 1.4 per cent respectively last Monday.

Following a pause, the bellwether indices extended their rally on Wednesday.

The big trigger came from the Indian Meteorological Department predicting above-normal rains for the 2016 South-West monsoon by 104-110 per cent of the Long Period Average.

Falling consumer price inflation that strengthened hopes of further rate cuts by the RBI and rising Index for Industrial Production (IIP), also kept markets buoyant.

Diesel and petrol price cut could see further easing of inflation in the coming weeks.

Infosys that kicked off the earnings season with solid results is likely to keep the market upbeat on Monday.

It remains an action-packed week for the market, as other companies from the blue-chip pack declare their results.

Stock Exchanges are closed on Tuesday for Mahavir Jayanti.

Nifty 50 (7,850.4)

In the truncated week, the Nifty 50 index gained 295 points or 3.9 per cent. With this rally, the index has decisively breached the key immediate resistance at 7,730 and closed at a three-month high.

The week ahead: Following a brief blip below the key support level of 7,600, the index recovered smartly last week. Moreover, Nifty 50 breached significant resistance levels while trending up. The daily relative strength index has re-entered the bullish zone from the neutral region.

Additionally, both the daily as well as weekly price rate of change indicators feature in the positive territory, implying buying interest. Last Wednesday, the index surged 1.8 per cent, which could be a runaway gap or a measuring gap.

The runaway gap implies continuation and hence the uptrend can continue in the coming weeks or months. Investors with a short and medium-term perspective can take fresh long position with a stop-loss at 7,675 and 7,500 respectively. However, one cannot rule out the possibility of the gap narrowing in the coming weeks.

Near-term targets are the immediate resistances ahead at 7,900 and 8,000 levels. Supports for the week ahead are at 7,772 and 7,700. Next key base is at 7,600.

Medium-term trend: Wednesday’s rally has decisively breached the intermediate-term downtrend line, in place since March 2015.

An emphatic break-out of the significant resistance and trend-deciding level of 8,000 will alter the downtrend and take the index northwards to 8,100 and then to 8,175 in the medium term.

Subsequent key resistance is pegged at 8,300. Conversely, failure to move beyond 8,000 will keep the index in a sideways consolidation phase in the 7,600-8,000 range. Supports below 7,600 are placed at 7,400 and 7,250.

Sensex (25,626.7)

The Sensex jumped 953 points or 3.9 per cent last week, conclusively breaching the key resistances at 25,000 and 25,500. This rally has strengthened the short-term uptrend.

The week ahead: The index appears to have resumed its short-term uptrend that was in place since late February. Immediate target is 26,000.

A successful breakout of this level can take the index higher to the 26,300-26,500 band in the short to medium term. On the downside, the index has key base at 25,500 and then at 25,000.

To alter the intermediate-term downtrend, the Sensex needs to decisively break above the key resistance range between 26,300 and 26,500.

The possibility then of trending to 27,200 is high. Supports below 25,000 are at 24,500, 24,000 and 23,000.

Bank Nifty (16,278.5)

The index zoomed 710 points or 4.6 per cent last week, negating the bearish indications charted earlier. Bank Nifty took support at 15,500 and continued its short-term uptrend.

Nevertheless, the index tests a key resistance at around 16,250.

Only a strong rally above this level will strengthen the uptrend and take it upwards to 16,500 and 16,800. Next resistance are at 17,000 and 17,250.

Traders with a short-term horizon can go long if the index decisively moves above 16,250 with a stop-loss at 16,000.

Conversely, a slip below 16,000 can pull the index down to 15,800 and 15,500 once again. Subsequent supports are at 15,000 and 14,765.

Global cues

After testing its support at 17,500, the Dow Jones Industrial Average continued its uptrend by gaining 1.8 per cent last week. The index now faces a key resistance ahead at 18,000.

An emphatic breakthrough of this level can take the index higher to 18,351 or even new highs. Significant supports to note are at 17,500 and 17,000.

The Nikkei 225 index found support at 15,500 and bounced back, skyrocketing 6.5 per cent in the prior week.

But the index faces a key hurdle at 17,000. Breach of this level can push the index higher to 17,500 in the near term.

Inability to move beyond 17,500 can drag the index down to 16,500 and 16,000 in the coming weeks.