Bank Nifty hovering above key base level

The CNX index for banks, namely the Bank Nifty, has been on an intermediate-term downtrend since peaking out at an all-time high of 13,303 in November 2010. After a brief uptrend, encountering resistance at 10,000 in October 2011, the index resumed its downtrend and declined sharply. However, retracing more than 50 per cent Fibonacci retracement level of the prior up move between March 2009 and November 2010, the index found support at around 8,000 in the last month.

The index is currently pausing slightly above this support. An emphatic downward break through of 8,000 level will propel the CNX Bank Index lower to 7,000 levels in the medium-term. Strong decline below 7,000 will mar the Bank Nifty's long-term uptrend and pull the index down to its subsequent support band between 6,300 and 6,400 in the long-term. Support below this band is at 5,720 levels.

Medium-term view

The index continues to be in a medium-term downtrend from its October 2011 peak of 10,080 levels. However, marking a 52-week low at 7,766 in December 2011, the Bank Nifty found a base and rebounded upwards.

It is currently facing resistance at 8,650 levels. Conclusive move above this immediate resistance will push the index higher to 9,000 and then to 9,200 in the short-term. But a strong weekly close above 9,200 is required to reverse the medium-term downtrend and lift the index higher to 10,000 with a small pause around 9,600 levels.

Only a strong move beyond 10,500 will alter the Bank Nifty's intermediate-term downtrend and take the index northwards to 11,000 in the medium-term. Key resistances above this level are at 11,500 and 12,000.

On the other hand, failure to move above 9,000 will pull the index down to 8,000 levels and then to 7,800 in the medium-term.

Next medium-term support for the index is at 7,400.

CNX IT Index

The CNX IT Index landed at around 5,000 levels in August 2011, following a steep plummet from 6,400 levels in short span of time. However, the index reaching the oversold levels, and a trigger in positive divergence in daily relative strength index, helped the index reverse its direction and moved northwards. Since then, the index has been on a medium-term uptrend. It appears to have resumed its long-term uptrend that has been in place since early 2009.

However, its intermediate-term downtrend, from the January 2011 high of 7,591 still remains in force. The index faces significant resistance at 6,500 which can provide a hurdle to the index's up move in the ensuing weeks.

A strong breakthrough of the important resistance level at 6,500 will reverse the intermediate-term downtrend. In other words, a strong breakthrough will reinforce its long-term uptrend. In such a case,the index has the potential of trending higher to 7,500 levels in the long-term.

Conversely, the inability to rally above 6,500 will pull the index down 5,800 and then to 5,500 levels. A decisive breakthrough of the base level at 5000 will pull the index downwards to 4,730 and to 4,500. Key support below this level is in the range between 4,000 and 4,150.

Medium-term view

Medium-term trend is up for the IT Index since the August 2011 low of 5,011 levels. After retracing 50 per cent Fibonacci retracement level of its prior downtrend, the index encountered resistance at 6,300 level last October.

Following small corrective declines, the index is once more testing the significant resistance at 6,300. The zone between 6,300 and 6,500 is an important trend deciding zone as well as significant resistance zone for the index.

Strong breakthrough of the resistance 6,500 will take the index higher to 6,800 and then to 6,950 levels in the medium-term. Subsequent key resistance for the index is positioned at 7,300. On the other hand, failure to surpass the resistance zone of 6,300 and 6,500 will drag the index lower to 5,900 and 5,700.

Only a decline below 5,500 will mitigate the medium-term uptrend of the index and pull it down to 5,300 and 5,000 in the medium-term.

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