Stock Fundamentals

Indices range-bound, with negative bias

Yoganand D BL Research Bureau | Updated on July 08, 2019 Published on July 06, 2019

The bellwether indices show signs of weakness. Tread with caution

The Sensex and the Nifty witnessed an anticipatory rally in the initial part of the week, ahead of the Budget. But lack of positive takeaways for the stock market triggered profit booking on Friday. The tweaking of the Securities Transaction Tax (STT) may have minimal impact for traders. With the Budget now behind them, investors will turn their attention towardsthe first quarter earnings that will kick off on Friday. On the global front, the FOMC minutes, US Jobless claims and the US-China trade talks are key events to watch out for.



Nifty 50 (11,811.1)

The Nifty index closed marginally higher, gaining 22 points, or 0.19 per cent, over the week. It tested the key resistance at 11,900 and failed to decisively close above this level, denoting weakness. Now, the index can decline and test support in the band between 11,650 and 11,700. The indicators and oscillators in the daily as well as weekly charts are trending down, showing signs of weakness.

A strong fall below 11,650 can pull the index lower to 11,600, which is the ceiling of the gap that was formed in late May this year. This will weaken the short-term up-trend that has been in place from May and signal a potential trend reversal.

We restate that an emphatic decline below the crucial support level of 11,600 can pull the index down to the next key support level of 11,500 or 11,400 levels in the short term.

A further fall below 11,400 will alter the uptrend that has been in place since February. In that case, the index may fall to 11,250 and 11,150 levels over the short to medium term. Investors with a medium-term horizon can consider booking partial profits if the index dips below 11,650 and stay invested with a stop-loss at 11,350 levels.

Conversely, an emphatic rally above the immediate key resistance level of 11,900 can bring back buying interest. Such an up-move can push the index higher and it can test the next resistance in the 12,000-12,040 range. A conclusive break above this barrier will strengthen the uptrend and take the index higher to 12,200 and 12,500 over the short to medium term.

Medium-term trend: Witnessing selling pressure at higher levels, the index was stuck in a sideways range in the previous week as well, though the trend will continue to be up as long as the index trades above the vital support of 11,000-11,100. A strong rally above 12,000 will pave the way for an upmove to 12,500 in the medium term. On the other hand, a decisive decline below the key base level of 11,000 will alter the medium-term uptrend and drag the index lower. Next key medium-term supports are pegged at 10,800 and 10,600.

Sensex (39,513.3)

The Sensex tested a key psychological resistance at 40,000 and plunged 1 per cent on Friday. But it finished the week in green, notching up a marginal gain of 118 points or 0.3 per cent. Since mid-May, the index has been in a sideways consolidation phase in the wide range between 39,000 and 40,200. The index has to break out on either side of this range, to set a clear, short-term direction.

The daily and weekly indicators are showing signs of weakness. We reaffirm that a conclusive decline below the support level of 39,000 can drag the Sensex lower to 38,600 and then to 38,000 levels in the short term.

That said, to alter the short-term uptrend, in place since early May, the index has to dive below 38,000. Such a fall can pull the index lower and test next supports at 37,500 and 37,000 levels. On the upside, a strong breakthrough of significant resistance band of 40,000-40,200 will reinforce the uptrend and push the index higher to 40,400 and 40,800 levels over the medium term. We reiterate that failure to rally above the upper-end can keep the index in a sideways consolidation phase in the wide 38,000-40,000 band for a while.

Nifty Bank (31,475.8)

Last week, the Nifty Bank was resilient backed by PSU banks rally and gaining 370 points, or 1.19 per cent. While it outperformed the Sensex and the Nifty, the index tests a key resistance at 31,500.

The daily indicators are showing mixed signs. The weekly relative strength index is displaying negative divergence, implying that a potential trend reversal is on the cards. Therefore, traders should tread with a caution in the ensuing week. Failure to move above the current resistance in the band between 31,500 and 31,700 can bring back selling pressure and drag the index down to 31,000.

A strong plunge below this base level can pull the index down to 30,500.

A conclusive decline below 29,500 levels can weaken the short-term uptrend and pull the index down to 29,000 over the medium term. Traders with a short-term view should tread with caution and avoid taking fresh positions at this juncture. A strong rally above 31,700 can reinforce the bullish momentum and take the index higher to 32,000 in the short term.



Published on July 06, 2019
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