Nifty, Sensex Outlook: Indices look for support :: BL

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Both the Nifty and the Sensex started the week on a lacklustre note. The domestic indices fell on Tuesday, as weak China factory data rekindled global growth worries. Global stocks too slumped after data revealed deceleration in China’s manufacturing activity in April.

As the Nifty and the Sensex slipped below their key supports, the next base level crawled in to provide cushion for the rest of the week.

On Friday, the US markets closed on a positive note as weaker-than-expected jobs growth quelled concerns about the Federal Reserve’s pace of rate hike during the year. In the week ahead, the domestic market will focus on macro data.

The Index of Industrial Production (IIP) numbers for March are to be released on May 12. IIP bounced back into the positive zone in February, rising 2 per cent after three months of contraction.

The impressive core sector growth could impact IIP positively. Consumer Price Index (CPI) inflation data will also be reported the same day. CPI inflation has fallen to a six-month low of 4.83 per cent in March. Earnings announcement could also trigger some volatility in the coming week. The Nifty fell 116 points or 1.5 per cent and the Sensex lost 378 points or 1.5 per cent last week. Both the indices have retreated for the second straight week.

Nifty 50 (7,733.4)

After testing the key support at 7,800 initially, the Nifty fell and started to test its next support at 7,700. The index hovers well below it 200-day moving average.

The week ahead: The index has been on a near-term decline since encountering a key resistance at around 8,000 in late April. It has slipped below a key support as well as the 200-day moving average while trending down. The indicators and oscillators have retreated from the overbought levels and feature in the neutral region.

But the buying interest is evident as the weekly price rate of change indicator continues to feature in the positive terrain. The index now tests a support at 7,700. A slump below this level can drag the index down to the significant base zone between 7,550 and 7,600 from which it has reversed higher in the past.

Therefore, investors need not hit the panic button. Instead they can consider buying on an upward reversal from this base zone with a stop-loss at 7,525. Strong reversal can take the index higher to the immediate resistance level of 7,800. Breakthrough of this level can pave way for a rally to 7,900 or even to 8,000 in the short term.

Medium-term trend: We had mentioned in the past that if the index faces difficulty in moving past 8,000, then a sideways move is possible in the band between 7,600 and 8,000. In late April, the index failed to move past 8,000 and is on a decline.

Now, the index is likely to move sideways in the band for a while. Strong breach of 8,000 will take the index upwards to 8,100 and then to 8,175.

Thereafter, significant resistance for the index is at 8,300. A decisive fall below the 7,550-7,600 band can drag the index down. Supports below 7,600 are pegged at 7,400 and 7,250.

Sensex (25,228.5)

The index has been on a near-term downtrend over the past couple of weeks, after encountering hurdle at 26,000.

The week ahead: The index hovers just above a key support level of 25,000. A fall below this level can find support at 24,500 in the near future which is vital.

Further plunge can start diminishing the bullish momentum and drag the index down to 24,000 and 23,000. An upward reversal and breach of the immediate resistance at 25,500 will reinforce the bullishness and take the index up to 26,000.

A conclusive breach of 26,000 can take the index higher to 26,300 and 26,500 in the short term.

Bank Nifty (16,296.6)

Bank Nifty has tumbled 498 points or almost 3 per cent, after encountering resistance at 17,000. However, the index tests a key support at 16,250.

A decline below this level can find support at 16,000 or 15,800 in the near term. The index has significant supports below 15,800 at 15,500 and 15,200 which is a key trend-deciding level for the uptrend that commenced in late February.

Traders with a short-term perspective should tread with caution and consider initiating fresh long position only on a strong rally above the immediate resistance at 16,500 with a fixed stop-loss. The index can trend to 17,000 in the short term. Important resistance above 17,000 are at 17,250 and 17,500.

Global cues

The Dow Jones Industrial Average continued its decline for the second consecutive week. It has formed a spinning top candlestick pattern in the weekly chart that implies indecisiveness.

Strong rally above the key resistance level of 18,000 is needed to strengthen the uptrend and take the index higher to 18,351 or even new highs.

Key immediate support is at 17,500 and a fall below this level can have bearish implications and pull the index down to 17,200 or 17,000.