As indicated last week, the bulls were expected to try and defend the initial support zone of 23930-23817 and the crucial lifeline at 23682, while the bears would attempt to defend the first resistance zone of 24080-24170 and the critical resistance at 24304. The week started with a massive gap-down opening, with Nifty initially dropping to the 23555 level. However, it recovered from there to close the day at 23842. Amidst significant global anxieties following the failure of peace talks in Pakistan, Nifty’s ability to hold two major supports was indeed another victory for the bulls.
Later, after a trading holiday, Nifty rallied over the next three days to reach 24400 before closing very strongly at 24353. In essence, the highlight of the past week was that after testing the lowest major support level, the index managed to cross and close above the key resistance line at the higher levels. While indications of easing Iran-US tensions bringing down oil prices and the Reserve Bank’s decision to keep interest rates unchanged provided momentum to the bulls, a major drawback of this current rally is that the initial surge was primarily seen in small-cap stocks.
This is a matter of concern as it is not a favorable structure for a sustainable bull rally. In any scenario where the market fully recovers from a correction, a healthy upmove typically begins with large-cap stocks. The ideal progression is for the rally to then spread to mid-caps and finally to small-caps. What is happening right now is exactly the opposite. Therefore, this upmove should certainly be approached with a degree of caution. Let us now look at the crucial levels for the coming days.
Nifty’s recovery, which started from the support level of 22180, has now reached up to 24400. There are some very important resistance lines ahead. The first task is to cross and close above the resistance zone of 24522-24576. Above this, the 24642-24772 zone will be the next hurdle. The stiff resistance zone of 24820-24978 is the subsequent area the bulls need to conquer. Beyond this, the target of 25006 and the resistance zones of 25476-25645-25828 await the bulls. On the downside, the levels to watch in the coming days would be the loss of the first support at 24218 on a closing basis. If this happens, bears will aim to break the supports at 24050-23783, or more importantly, the critical support at 23555.
The movement of Brent Crude also needs to be monitored in the upcoming days. Although it lost the crucial support of 91.15 intraday last week, it managed to pull back and close at 91.57, which keeps the concerns alive. Further price decline can only be expected if there is a closing below 91.15 in the coming days. If that materializes, the next support to watch will be in the 82.40-81.60 range. As long as it sustains above 91.15, the possibility of an upward move remains open.
The Dollar Index closed at 97.90 last week. In the coming days, the resistance levels of 98.66-99.35 and the support levels of 97.43-97.05 need to be watched. A further slide in the Dollar Index will be beneficial for the Indian market. The Rupee closed at 92.98 last week. The levels to watch in the coming days are 92.20-91.58. If it sustains below these levels, it can be taken as a sign of the Rupee strengthening.