Technical Analysis

Index Outlook: All eyes on Rajan

Yoganand D | Updated on January 17, 2018 Published on August 06, 2016


The Nifty and Sensex bounced back strongly on Friday, but face stiff barrier ahead

Slight delay in passing the GST Bill kept the bellwether indices volatile in the initial part of the week. While the Bill was passed by the Elders last Wednesday, there are still many steps to cover before GST (Goods and Services Tax) becomes a reality. Majority of the State Assemblies have to adopt the Bill before the Centre sets up theGST Council. These events can keep the market edgy in the coming months. Moreover, positive global cues such as Japan's economic stimulus package worth more than 28 trillion yen ($275 billion) and the Bank of England's first interest-rate cut in seven years pushed both global and domestic markets higher in the previous week. The BoE cut the key interest rate to 0.25 per cent from 0.5 per cent and improved its bond-buying programme to counter the effects of a possible recession triggered by Brexit. Last week, the foreign portfolio investors (FPIs) as well as the domestic institutional investors were net buyers in the markets. Going forward, the Reserve Bank of India’s monetary policy scheduled on August 9 could provide some direction to the markets along with ongoing corporate earnings announcement and monsoon’s progress.

Nifty 50 (8,683.1)

Last week, the Nifty 50 advanced 44 points or 0.5 per cent in the amidst choppiness. But it faces a key barrier ahead at 8,700.

The week ahead: After an initial decline to an intra-week low of 8,518, the index bounced back sharply gaining 1.5 on Friday, triggered by positive global cues and broad based buying in the market. This rally has erased the initial loss in the index. However, the indicators in the daily chart continue to chart downwards showing signs of weakness. The volumes in the daily chart are decreasing. Strong up-move beyond the immediate resistance at 8,700 can reinforce the bullish momentum and push the index further higher to 8,800 levels in the short term. The index managing to stay above the key support at 8,500 in the week ago depicts near-term strength. Failure to surpass 8,700 can keep the index moving sideways in the band between 8,500 and 8,700 for a while. Traders with a short-term perspective can hold their long positions with a stop-loss at 8,560. On the other hand, strong plunge below the key base level of 8,500 can bring back selling pressure and drag the index lower to 8,400 or even to 8,300 levels in the short term. In this scenario, traders should desist taking fresh long positions.

Medium-term trend: Friday’s strong rally has pushed the index beyond the significant resistance at 8,600. But the hanging man candlestick pattern in the weekly chart is a cause for worry. A downward reversal in the coming week can bring the index below 8,600 once again. Decisive rally beyond 8,700 can alter this view and take the index northwards to 8,800 levels in the ensuing weeks. Significant medium-term supports for Nifty are at 8,300, 8,100 and 8,000.

We reiterate that the uptrend will be under threat only on a conclusive fall below the 8,000 mark. The 7,700-7,800 band is the next support. Investors with a medium-term perspective can consider taking partial profits off the table at this juncture and hold long positions with a revised stop-loss at 8,000.

Sensex (28,078.3)

The Sensex inched 26 points higher last week and still tests the vital resistance at 28,000.

The week ahead: The short-term trend is up for the index. But, it now tests the significant resistance at 28,000. The index was volatile and formed a doji candlestick pattern in the weekly chart implying neutral stance. We reaffirm that the 28,000-28,500 range is a significant resistance band from a medium-term perspective. A decisive break through the 28,000-mark can take the index upwards to 29,000 and then to 29,500 in the coming months. Having said that, a dull start for the week can pull the index down to the immediate support level of 27,500 and 27,000. Strong downward, break of the 27,000 level can mar the short-term uptrend and drag the index down to 26,400-26,500 zone.

Bank Nifty (18,925.9)

After taking support at 18,500, the Bank Nifty bounced back on Friday. The index has slipped marginally by 27 points in the prior week and continues to test the important hurdle at the 19,000-mark. It currently trades sideways in the band between 18,500 and 19,000. A clear break-out of this range will set the tone for the next short-term direction. A strong fall below 18,500 can pull the index down to18,300 and 18,000 levels. Key supports below 18,000 are at 17,830 and 17,600.

However, bullish break-out of 19,000 can strengthen the uptrend and take the index higher to 19,500 and 20,000

Global cues

The Dow Jones Industrial Average gained 0.6 per cent to finish the week at 18,543 and tests a key resistance at 18,550. Next resistances are at 18,622 and 18,700. Supports are at 18,300 and 18,000.

Published on August 06, 2016
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