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In this week's dissector we take a close look at the Bank Nifty index and the CNX IT index which showed divergence last week. Bank Nifty advanced 2.8 per cent while Infosys’s March 2013 quarter results triggered a 9.8 per cent tumble in the CNX IT. The benchmark index Nifty was choppy and fell marginally 0.4 per cent, settling at 5,528.5.
Bank Nifty (11,410.1)
Since bottoming out at the December 2011 low of 7,766, Bank Nifty has been on an intermediate-term uptrend. However, encountering resistance at around 12,900 in January this year, the index reversed direction triggered by negative divergence in the daily indicators. The index has been on a medium-term downtrend since then.
After retracing 38.2 per cent Fibonacci retracement level of its prior up move, the index found support in the band between 11,000 and 11,200 in late March and early April.
This band is also a significant long-term support zone. Testing this, zone the index is reversing higher.
It needs to conclusively break through the key resistance at 12,000 to reinforce bullish momentum and move northwards to 12,500 and then to 13,000 in the medium-term. Inability to surpass the 12,000 mark will confine the Bank Nifty to consolidating in the broad range between 11,000 and 12,000. Key short-term supports are at 11,100 and 10,900 levels.
Resistances are positioned at 11,500 and 11,800 levels.
On the other hand, important support to watch out for is positioned between 11,000 and 11,200. Strong decline below this band will strengthen the medium-term downtrend and pave the way for a down-move to 10,500 and to 10,000 levels in the medium-term. As long as the index trades above 10,000, its intermediate-term trend will remain up. A decisive fall below this level will mar its uptrend and drag the index lower to 9,500.
CNX IT (6,354.9)
Taking support at around 5,000 in August 2011, the CNX IT Index resumed its long-term uptrend and started trending higher. Nevertheless, the index reversed direction after encountering key resistance in the zone between 7,400 and 7,500 in early March this year. This reversal is backed by negative divergence in the daily indicators.
The index subsequently began trending down and has been on a short-term downtrend. On Friday, Infosys (47.3 per cent weight in the index) plummeted 21 per cent with extraordinary volume, pulling the CNX IT index down by 11.7 per cent in the session. TCS and Wipro have 27.3 per cent and 7.7 per cent weight respectively, in the index.
With the recent decline, the index has decisively breached key supports at 6,900 and 6,700 levels.
It has retraced almost 50 per cent Fibonacci retracement of its prior uptrend and is currently hovering just above a significant long-term support at around 6,270. Strong decline below this support level will pull the index down to its next important support at 5,900 in the medium-term. Next support is pegged at around 5,500.
An upward reversal from the immediate support of 6,270 will be short-lived. The index has to emphatically rally above the 6,900 resistance level to alter the short-term downtrend and take it higher to 7,200 or 7,400 levels in the medium-term. Immediate key supports are at 6,270 and 6,000. Resistances are positioned at 6,600 and 6,726 levels.
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