Technical Analysis

All eyes on the Monetary Policy

Yoganand D | Updated on June 03, 2018 Published on June 02, 2018

The RBI’s rate call will dictate the direction of the Sensex and the Nifty

Both the Nifty and the Sensex exhibited choppy trading in the crucial May derivatives expiry week. The GDP data released last week showed that it grew by 7.7 per cent in fourth quarter of financial year 2018, boosting market sentiment. Further, short-covering and selective buying took the indices higher on Thursday, but they retreated slightly thereafter. This was on the back of profit-taking and slip in India's manufacturing PMI data from 51.6 in April to 51.2 in May.

Investors also turned cautious ahead of the RBI’s monetary policy meeting. The second bi-monthly monetary policy statement for 2018-19 is scheduled on June 6. Investors also need to focus on the progress of the monsoon, besides the rupee movement which shows some signs of strengthening.

Nifty 50 (10,696.2)

Last week, the Nifty index advanced 91 points or 0.86 per cent amid volatility due to derivatives expiry. After a mid-week slump, it bounced up strongly on the back of short-covering and buying interest on Thursday. However, the index tests a key resistance at 10,700 and faces another at 10,800 levels.

Short-term trend: The index continues to be in a short-term uptrend since March trough at around 10,000. After taking support at 10,420 levels, it has resumed its uptrend. Nevertheless, the index hovers at the key resistance zone between 10,700 and 10,800.

A strong breach of this zone is needed to strengthen the bullish momentum and pave way for an up-move to 11,000 and then to 11,150 in the short term. Having said that, if the index fails to surpass this zone and falls below the immediate support level of 10,550, it can fall further to 10,420 and 10,350 levels in the short term.

A further fall below these levels will mitigate the short-term uptrend and pull the index down to 10,250 and then to 10,100. Subsequent supports for the index are at 10,000, 9,700 and 9,500 levels. The indicators and oscillators display mixed cues. Traders with a short-term view should tread with a caution as long as the index tests resistances in the 10,700 and 10,800 band.

Medium-term trend: The index advanced marginally last week. But it still tests the significant trend-deciding resistance at 10,700. A decisive rally beyond this level is required to alter the medium-term down-trend that has been in place from the January peak of 11,171.

Such a move can reinforce the bullish momentum and push the index up to 11,000 and 11,200 levels. On the other hand, a conclusive plunge below the key support level of 10,400 can drag the index lower to 10,200 and 10,000 in the medium term.

Sensex (35,227.2)

The Sensex vacillated in a wide range and has formed a spinning top candlestick pattern in the weekly chart, implying indecisiveness. It rose 302 points or 0.87 per cent last week.

Although the index has managed to close above the key resistance levels of 35,000, one more decisive weekly close about this level is needed to confirm the break-out.

In that case, the index can trend higher to 35,600 and 35,800-36,000 range in the short term. However, failure to sustain above 35,000 levels can pull it down to 34,600 and 34,300 levels.

Medium-term trend: The recent rally has not taken the index beyond the key trend-deciding level at around 35,000. It continues to test this resistance area. A strong rally beyond 35,000 can strengthen the uptrend and take the index upwards to 35,800 and 36,000. Next resistances to watch are at 36,200 and 36,400 levels. But a decline below the vital support level of 34,000 can drag the index lower to 33,400 over the medium term. Supports at 33,000 and 32,500 can come to play thereafter.

Nifty Bank (26,692.8)

In the previous week, the Bank Nifty extended its rally in the midst of choppiness. Following an initial fall, the index found support at 26,000 and bounced up strongly. It advanced 419 points or 1.6 per cent. Since taking support from the March low of 23,605, the index has been in a short-term uptrend. However, it now tests a significant resistance at 27,000. The indicators such as price rate of change and relative strength index show signs of weakness.

That said, a strong upward breakthrough of 27,000 will accelerate the up move to 27,500 and then to 28,000 in the short term. Inability of move beyond 27,000 can pull the index down to 26,500 and 26,000 levels.

Traders with a short-term perspective should tread with caution and consider taking long positions only on a strong rally beyond 27,000 levels with a fixed stop-loss. The index has the next key support in the 25,500-25,600 range. Only a slump below this range will threaten the uptrend and pull the index lower to 25,000 and then to 24,500 levels in the medium term.

Global cues

In the previous week, the Dow Jones Industrial Average managed to recoup most its initial loss but closed at 24,635, falling 117 points or 0.5 per cent. The resistance in the 24,800-25,000 zone can limit the upside in the near future. An emphatic breach of 25,000 is required to strengthen the bullish momentum and push the index up to 25,300 and 25,500 levels. Supports at 24,400 and 24,200 can provide base.

Published on June 02, 2018
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