D-Street Ahead: How will Indian stock market move next week? Your trading strategy—key technical calls for Nifty, Sensex

D-Street Ahead: Bulls gripped the Indian stock market encouraged by signs that foreign investors are returning to India. D-Street participants indulged in bargain hunting and bet the blue-chip indexes have bottomed out after a record slump. Last week's market rally was fueled by improving investor sentiment, renewed foreign capital inflow, and positive global market cues.

Domestic equity benchmarks Sensex and Nifty 50 extended their winning streak for five straight sessions and clocked weekly gains of nearly 4.2 per cent. The NSE Nifty 50 index logged its largest weekly rise in more than four years.

The NSE Nifty 50 gained 0.69 per cent during Friday's session to settle at 23,350.4, while the BSE Sensex rose 0.73 per cent to 76,905.51, both six-week closing highs. The BSE smallcap gauge jumped 2.05 per cent and midcap index rallied 1.14 per cent on Friday. The broader midcaps and smallcaps soared 7.7 per cent and 8.6 per cent, respectively, to log their biggest weekly gains in about five years.

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Indian stock market's performance last week

On the weekly front, the BSE benchmark surged 3,076.6 points or 4.16 per cent, and the Nifty jumped 953.2 points or 4.25 per cent. Experts said the US Fed has suggested the possibility of two interest rate cuts this year reigniting the optimism in the domestic market. Equity investors became richer by ₹22.12 lakh crore in the five-day stock rally.

The Indian rupee logged its best week in more than two years on Friday. The market capitalisation of BSE-listed companies jumped ₹22,12,191.12 crore to ₹4,13,30,624.05 crore ($ 4.79 trillion) in five days. Heavyweight financials rose 5.5 per cent, providing the biggest boost to the benchmarks.

Financial stocks outperformed, as the Nifty Bank rallied 5.27 per cent and the Nifty Financial Services index rose 5.49 per cent, reaffirming the sector’s dominance as the largest contributor to the Nifty 50. Heavyweight financials rose 5.5 per cent, providing the biggest boost to the benchmarks.

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Several factors contributed to the sharp recovery. Easing pressure from foreign institutional investors (FIIs), marked by positive flows in both cash and derivatives segments, provided much-needed stability. Additionally, crude oil prices and the dollar index remained at lower levels after a recent decline, supporting market sentiment.

Further, dovish signals from the US Federal Reserve regarding future rate cuts, coupled with reports of de-escalation in the Russia-Ukraine conflict, added to the optimism. The rally was broad-based, with all key sectors participating. Realty, energy, and pharma emerged as the top gainers.

Sensex, Nifty, and Bank Nifty technical levels to watch

1.Sensex/Nifty

Amol Athawale, VP-Technical Research, Kotak Securities said Nifty/Sensex successfully cleared the short-term resistance of 22,700/75,000, and post-breakout, the positive momentum intensified. It also surpassed the 20 and 50-day Simple Moving Averages (SMA), which is largely positive.

"Technically, on weekly charts, a long bullish candle has formed, and on daily and intraday charts, it is holding a higher bottom formation, which supports further upward movement from the current levels," said Athawale.

"In the near future, 23,100/75800 and the 50-day SMA or 23,000/75,400 would act as key support zones, while 23,500-23,700/77,400-78,000 could be the key resistance areas for the bulls," he said. However, if it falls below 23,000/75,400, the sentiment could change, and traders may prefer to exit from their long positions.

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"Nifty’s recent breakout from the 22,250-22,650 range has propelled it to a crucial resistance level around 23,400, where key moving averages (100-DEMA and 200-DEMA) are positioned. A move beyond this level could set the stage for further gains towards the 23,800-24,100 zone," said Ajit Mishra – SVP, Research, Religare Broking Ltd.

“On the downside, the 22,750-23,000 range is expected to provide strong support in case of a pullback.” According to Puneet Singhania, Director at Master Trust Group, the Nifty 50 index decisively closed above the falling trendline, signaling a breakout and potential trend reversal in favor of the bulls.

“In the near term, key support is at the 55-day EMA at 23,050, with a breach possibly triggering a decline toward 22,700. On the upside, resistance at 22,500 remains crucial, with a breakout potentially driving prices toward 22,800,” added Singhania.

Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities said, "A long bull candle was formed on the daily chart with minor upper shadow. This chart pattern indicates continuation of sharp upside momentum in the market.

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"Initial hurdle of down sloping trend line has been broken decisively on the upside at 23,000 as per daily chart and around 23,250 levels as per weekly timeframe chart. This is positive indication," added Shetti.

According to Shetti, a long bull candle was formed on the weekly chart with the weekly gain of around 4.25 per cent and this is a highest week on week gain of the last 5-6 months. “The underlying trend of Nifty continues to be positive.”

2.Bank Nifty

Ajit Mishra of Religare Broking believes the banking and financial sectors have played a pivotal role in the rally, with the banking index reclaiming major moving averages. “A breakout above 50,800 in the banking index could drive gains toward the 51,700-52,800 range, while 49,900 remains a crucial support level,” he added.

Bank Nifty gained 5.27 per cent this week, forming a strong Marubozu candle on the daily chart, signaling bullish momentum and a potential reversal from its 100-week EMA. The index closed at weekly highs and above the 21-day and 55-day EMAs, making it favourable for a buy-on-dip strategy," said Puneet.

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According to Amol Athawale, for the trend, traders should consider 50,000 and 49,700 as key support zones, while the 200-day SMA at 51,000 and 51,300 could serve as crucial resistance areas for positional traders.

"Key support is at the 55-day EMA around 49,500, and a drop below this could weaken the trend. On the upside, the next resistance is at 51,100, the 50 per cent Fibonacci level. A breakout above this could push the index toward 51,800, indicating further strength in the bullish trend," added Singhania.

D-Street trading strategy for next week

Ajit Mishra of Religare Broking advises traders to adopt a “buy on dips” strategy, focusing on sectors that have demonstrated consistent strength. Banking, financials, metals, and energy stocks remain preferred picks, while selective opportunities can also be explored in PSU and auto stocks.

Bank Nifty index closed at weekly highs and above the 21-day and 55-day EMAs, making it favourable for a buy-on-dip strategy. "Given the recent surge, traders should focus on selective stock-picking with a favorable risk-reward ratio rather than chasing momentum," said Mishra.

“Given the sharp rebound in broader markets, midcap and smallcap stocks may offer potential trading opportunities, though aggressive positioning should be avoided. Market sentiment remains positive, but investors should remain cautious and monitor key technical levels, global cues for further direction,” said Mishra.

“Nifty ended above the 21-day and 55-day EMAs, making it favourable for a buy-on-dip strategy,” said Puneet Singhania. Amol Athawale agreed that buying on dips and selling on rallies would be the ideal strategy.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.