Technical Analysis

All eyes on the Fed

Yoganand D | Updated on March 19, 2018

File Photo of the Federal Reserve Bank in Washington, DC, US.   -  Reuters

The Sensex and Nifty ended on a negative note. The Fed action will drive markets

Positive cues from the global market and domestic IIP and inflation data lifted the bellwether indices — the Nifty and the Sensex — during the initial part of the week. However, rise in geopolitical concerns on fear of escalating trade war, weighed on our market, subsequently.

On the domestic front too, the RBI’s blanket ban on issuance of letters of undertaking (LoU), a fallout of the massive scam at PNB, dragged banking stocks down. Telugu Desam Party (TDP) formally pulling out of NDA alliance, further triggered a fall on Friday.

In the coming week, all eyes are on the US Fed meeting, with broad expectations of a rate hike. The Bank of England’s policy action is also keenly awaited.

Nifty 50 (10,195.1)

After an initial rally, the Nifty index fell short of touching the key resistance at 10,500 and resumed its downtrend.

With the Friday’s sharp 1.6 per cent fall, the index gave away its initial gains and closed the week on a negative note, by declining 31 points or 0.3 per cent for the week.

Short-term trend: Following a corrective rally, the index recorded an intra-week high at 10,478 and resumed its short-term downtrend.

The 21-day moving average and a crucial barrier at around 10,400 also limited the index rally. The index trades well below its 21 and 50-day moving averages. The daily relative strength index has re-entered the bearish zone from the neutral region. Both the daily and weekly price rate of change indicators feature in the negative territory implying selling interest.

However, the index currently tests a key base at 10,200 and its 200-day moving average poised at 10,160, can also lend support. Moreover, the Nifty has another significant medium-term support in the band between 10,000 and 10,100 that can buttress the decline.

Failure to sustain above this base zone can pull the index down to down to 9,800 and then to 9,700. On the other hand, an upward reversal from the current supports can witness another corrective rally which can encounter resistances at 10,420; 10,500 and 10,600 levels.

To alter the downtrend, which has been in place from the January high of 11,171, the index needs to decisively advance above 10,600 levels.

Such an up-move can take the index northwards to 10,700 and then to 10,800 levels

Medium-term trend: The index has been in a short to medium-term downtrend since late January peak. Nevertheless, a clear tumble below 9,950 is needed to confirm the medium-term trend reversal. In such a scenario, the index can decline to 9,560 and 9,170 over the medium term. Having said that, an upward reversal from the key support level of 10,000 can keep the index in a broad sideways band between 10,000 and 11,200 for a while before a directional move unfolds. A strong up-move beyond 10,800 can take the index northwards to 11,000 and 11,200 levels over the medium term.



Sensex (33,176)

The 509 point tumble on Friday has reinforced the bearish momentum in the Sensex. Overall, the index fell 131 points or 0.4 per cent last week.

Short-term trend: The index continues to the in a short-term downtrend. It has an immediate support at 33,000 and next at 32,800, which is the 200-day moving average.

These supports can help the index to halt its decline in the near term. A subsequent upward reversal can take the index higher to 33,800 and 34,000 in the short term. This rally could be a corrective rally as long as the index trades below 34,600 levels.

An emphatic breach of 34,600 will alter the downtrend and take the index higher to 35,000 and 35,375 in the medium term. However, a conclusive downward breach of the 200-day moving average at 32,800 will strengthen the downtrend and pull the index down to 32,400. Further break below this level will mitigate the medium-term uptrend and pull the index lower to 31,800 and 31,650 levels. Vital resistances above 34,600 are placed at 35,200 and 36,000.

Nifty Bank (24,489.5)

Although the Bank Nifty fell 1.2 per cent on Friday, it managed to close the week in the green by adding 193 points or 0.8 per cent. The index now tests a key support at 24,500 and subsequent support is pegged at 24,000. An upward reversal from these support levels and take the index higher to 25,000 which was tested last week. A strong breakthrough of this level is required to alleviate the selling pressure and take the index northwards to 25,500 and then to 26,000 in the short term.

Traders with a short-term perspective can consider taking long positions on a strong rally above 25,000 levels with a fixed stop-loss. To change the ongoing downtrend, the index needs to emphatically break above 26,000 levels.

Such a breakthrough can bring back bullish momentum and take the index northwards to 26,500 or 27,000 levels in the medium term. Key supports below 24,000 are placed at 23,600 and 23,500.

Global cues

Amid volatility, the Dow Jones Industrial Average ended the week in the red, declining 389 points or 1.5 per cent to close at 24,946.5. The index continues to face resistance at 25,500 which it had failed to surpass last week. A break above this barrier can take it northwards to 25,800 and then to 26,000 in the short term. Nonetheless, a plunge below the immediate support level of 24,500 can drag the index down to 24,200 and then to 23,800 levels. Resistances above 26,000 are placed at 26,300 and 26,600 levels.

The Nikkei 225 took support at around 21,000 and rebounded recently. The index added 207 points or 0.97 per cent to close at 21,676.5. An immediate resistance at 22,000 can be tested this week. However, a conclusive rally is needed to take the index higher to 22,500. Key supports are at 21,400 and 21,000.

Published on March 17, 2018

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