The domestic benchmark indices — the Sensex and the Nifty 50 — moved to record highs last week. But the truncated week ahead could limit the rally. Traders should continue to tread with caution.
Nifty 50 (13,760.5)
Last week, the Nifty 50 gradually progressed higher despite witnessing choppiness, and added 246 points, or 1.8 per cent. It continues to register new highs.
The week ahead: Since the index took support at the September low of 11,790, it continues to trend upwards. Both the medium- as well as the short-term trends are up for the index.
Following a strong acceleration in early November when the index surpassed vital resistances at 12,000 and 12,500, it met with a hurdle at around 12,900 and paused for a while in late November. Subsequently, the index continued to chart northwards. After a minor pause below 13,600 in recent times, the index surpassed this level last week.
For the first time since early 2018, the daily relative strength index (RSI) has entered the deep overbought territory, which signifies that a near-term correction is likely. As long as the index trades above the key short-term support in the band between 13,480 and 13,500, the short-term uptrend will remain intact.
With a minor corrective decline, the index has the potential to test the psychological resistance level of 14,000 in the upcoming weeks. The immediate support is at 13,600. A strong fall below the base zone of 13,480 and 13,500 can bring selling interest and pull the index down 13,200 and then to 13,000.
The key support below these bases is pegged at 12,750. A further decline under the vital support level of 12,750 will mitigate the short-term uptrend and pull the index lower to 12,400 and then to 12,260. A significant support to note thereafter is at 12,000.
Medium-term outlook: The medium-term trend continues to be up for the Nifty 50. We reiterate that if the ongoing rally extends without any major fall, the index has the potential to test the crucial psychological resistance at 14,000 in the ensuing weeks.
A conclusive breakthrough of this barrier can pave the way for the index to trend upwards to 14,500. However, inability to rally above 14,000 can keep the index on a sideways consolidation phase for a while.
On the downside, corrective declines can find a support at 13,000 initially. A decisive fall below this base can pull the index down to 12,430 and then to 12,000 over the medium term. The supports below 12,000 are placed at 11,500-11,640 band and at 11,000.
The Sensex rallied another 861 points, or 1.87 per cent, last week, decisively breaching the vital barrier at 46,000-mark. Testing the next crucial resistance at the 47,000 mark, the index recorded a new high at 47,026 on Friday.
The daily RSI is featuring in the overbought territory; a minor corrective dips is possible in the near term. The key support at 46,000 can provide cushion initially. A further decline below this base can pull the index down to 45,600 and then to 45,000. The next supports are at 44,520 and 44,000 levels.
The short-term uptrend will remain in place as long as the index trades above 45,000. Nevertheless, an emphatic fall below this level can drag the index lower to 44,000 over the medium term. The index has already reached the key resistance at 47,000.
A conclusive break above this can accelerate the index to 47,500 and then to 48,000 in the coming weeks. Investors with a long-term perspective can stay invested with a stop-loss at 39,000.
Nifty Bank (30,714.65)
The Nifty Bank index was volatile and almost traded flat, advancing 109 points, or 0.36 per cent, in the previous week. The uptrend that commenced from the September low of 20,404 appears to be fading as the index moved sideways over the past two weeks.
The daily RSI continues to display a negative divergence, implying that a trend-reversal is on the cards. Therefore, traders should continue to take a cautious stance in the truncated week ahead. We reaffirm that a decisive slump below the immediate support level of 30,000 will bring back selling interest and drag the index down to 29,500 and then to 29,000 levels.
A further decline below the next key base level of 29,000 will indicate a short-term trend-reversal that can drag the index down to 28,000 due to selling interest. The next supports are at 27,000 and 26,000 levels.
Conversely, an emphatic breakthrough of 31,000 can take the index higher to 31,500 and then to 32,000 over the short term. We restate that traders should desist from taking fresh positions as long as it stays range-bound between 30,000 and 31,000.