Technical Analysis

Index Outlook: Cracks appear in the uptrend

Yoganand D | Updated on January 18, 2018 Published on July 30, 2016

BL01CARS   -  Bijoy Ghosh


Both indices have lost momentum and the indicators are signalling weakness

Hopes of the GST Bill getting passed and positive global cues helped the broader indices Nifty and Sensex move beyond their key barriers last Monday.

But they subsequently turned volatile ahead of the July month derivatives contracts expiry, keeping the indices clinging to the key resistances.

The US Federal Reserve kept interest rates unchanged in the two-day monetary policy last week. The Bank of Japan (BOJ) announced only a modest dose of monetary stimulus, disappointing investors.

The market is likely to stay edgy in the near term as the fate of the GST Bill in Parliament will be decided early this week. Other data points, such as July auto sales data, corporate results and progress of monsoon, will also play a part in influencing stock price moves this week.

Globally, the market awaits the Bank of England (BoE) monetary policy response to Brexit, scheduled on Thursday. Investors anticipate stimulus measures and interest rate cut as a likely outcome of the meeting.

Crude oil also needs to be watched as WTI crude plunged 6.6 per cent to close at $40.5 a barrel.

Nifty 50 (8,638.5)

Amid choppiness, the Nifty 50 rose 97 points or 1 per cent in the previous week, slightly breaching the key resistance at 8,600 levels.

The week ahead: The index moved higher but, the indicators such as daily relative strength index and price rate of change in the daily chart are moving downwards, implying weakness.

Moreover, these indicators are displaying negative divergence, signalling that near-term trend reversal is on the cards. To signal the trend reversal, the index needs to emphatically fall below the key support at 8,300. A slip below the immediate supports at 8,600 and 8,500 can pull the index down to 8,400 or even to 8,300 levels in the short term.

If the index manages to hold above 8,600 and continues its uptrend, it can move northwards to 8,700 and 8,800 in the short term. Therefore, traders should tread with caution and consider going short only on a strong fall below the key support at 8,500 levels with a fixed stop-loss. Positive global cues can push the index higher to 8,700 levels.

Medium-term trend: The index tests a significant medium-term resistance at 8,600. It has just managed to close above this level but still a strong breakthrough is needed to reinforce the uptrend and take the Nifty upwards to 8,800 levels in the coming months. Key medium-term supports are at 8,300, 8,100 and 8,000.

The uptrend will be under threat on a decisive fall below the 8,000 mark. Next support in the band between 7,800 and 7,700 can then come to play. We reiterate that investors with a medium-term view can hold long positions with a stop-loss at 7,900.

Sensex (28,051.8)

The Sensex added 248 points or gained 0.9 per cent last week and continues to test the key hurdle at 28,000. Both the short and medium-term trends are up.

The week ahead: The Sensex still tests the significant resistance at 28,000. The indicators and oscillators in the daily chart are trending downwards, implying weakness. We restate that the 28,000-28,500 range is an important resistance band.

A near-term down reversal from this zone cannot be ruled out as the indicators are showing negative divergence and weakness. The index might move sideways in this resistance zone for a while. But, a strong trigger is required to break the resistance zone.

Supports for the week are at 27,500 and 27,000. Conclusive slump below the 27,000 level can mitigate the short-term uptrend and pull the index down to the band between 26,400 and 26,500. Conversely, a strong rally above the 28,000-mark can take the index northwards to 29,000 or to 29,500 over the medium term. Once again, traders with a short-term view should tread with caution.

Bank Nifty (18,953.1)

The Bank Nifty advanced 262 points or 1.4 per cent in the week ago, to test the key barrier at 19,000. Inability to decisively move beyond this resistance can pull the index down to 18,500 levels. But, a strong fall below this level will bring back selling pressure and drag the index down to 18,300 and then to 18,000 levels.

Hence, traders with a short-term perspective should tread with caution and consider initiating fresh short positions on a slump below 18,500 with a tight stop-loss.

On the other hand, break-out of 19,000 level will reinforce the medium-term uptrend and push the index higher to 19,500 and then to 20,000 in the short to medium term. Supports below 18,000 are placed at 17,830 and 17,600.

Global cues: The Dow Jones Industrial Average fell 138 points to close at 18,432.2. Immediate supports are at 18,300 and 18,000. Resistances are at 18,550, 18,622 and 18,700.

Published on July 30, 2016
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