Technical Analysis

Index Outlook: Cracks in the uptrend

Yoganand D | Updated on January 08, 2018 Published on September 30, 2017


Both the Nifty and Sensex test key support at the current levels

Downward breach of the 21- and 50-day moving averages and a key support last week, kept selling pressure on the domestic bellwether indices. Both the Nifty and the Sensex witnessed steep declines during last week, triggered by global cues and deprecating rupee that tanked to 6-1/2 month low last week. September month derivative expiry also exerted pressure on the indices.

Going forward, the RBI’s fourth bi-monthly monetary policy due this week is the key determinant of the market’s direction. September auto sales numbers and rupee momentum are also vital to note in the truncated week head

Nifty 50 (9,788.6)

The Nifty 50 index extended its decline by tumbling 175 points or 1.76 per cent last week, decisively breaching a key support at 9,900 and its 21- as well 50-day moving averages. The index now tests a key support in the band between 9,700 and 9,750.

Short-term view: Significant resistance in the zone between 10,130 and 10,170 capped the upside in the index, the week before. The index has been in a short-term downtrend since recording a new high of 10,178.9 on September 19.

While trending down, the index breached key support levels at 10,000-mark and 9,900 levels, which were vital.

However, the Nifty index found support in the base range 9,700 and 9,750 and currently tests it. Interestingly, the price action of the index since early July depicts formation of a double top pattern, which is a bearish reversal pattern. Neck-line of the pattern is at 9,700. An emphatic downward break of the neck-line will give an approximate medium-term price target of 9,300. However, the presence of key supports at 9,500 and 9,400 can limit the downside in the index.

Short-term trend has been down for the index over the past two weeks. A corrective rally in the coming week can encounter resistances at 9,900 and 10,000-mark. Both the 21- and 50-day moving averages are placed in the band between 9,900 and 10,000. The daily relative strength index has entered the bearish zone from the neutral region and the weekly RSI has entered the neutral region from the bullish zone. Moreover, the daily as well as weekly price rate of change indicators feature in the negative territory, implying emergence of selling interest. They have also displayed negative divergence, backing the short-term trend reversal.

Strong plunge below 9,700 can pull the index down to 9,600 and 9,500 in the short term. With the presence of significant medium-term support in the band between 9,700 and 9,750, traders with a short-term view should consider taking cautious stance at this juncture.

Await for a strong downward break of 9,700 level to consider initiating fresh short positions with a fixed stop-loss.

On the other hand, strong break above the key hurdle at 10,000 can mitigate short-term downtrend and take the index higher to 10,130-10,170 range. Next key resistances are placed at 10,200 and 10,300.

Medium-term view: The sideways consolidation in the wide band between 9,700 and 10,130 since early July has resulted in the formation of double top bearish reversal pattern. An emphatic downward break of the neck-line at 9,700 will give an approximate medium-term price target of 9,300. Key supports are pegged at 9,500 and 9,400. Conversely, strong upward break of 10,200 can pave the way for an up-move to 10,500 and 10,854 levels over the medium term.

Nifty Bank (24,053)

The Bank Nifty continued its downmove in the previous week as well by plummeting 315 points or 1.3 per cent. The index, however, found support at around 23,800 and witnessed a corrective up move due to short-covering during the fag end of last week. Even the Bank Nifty has been forming a double top bearish reversal pattern since early July. Strong downward break of the neck-line at 23,800 is required to confirm the pattern. Eventual medium-term target would be 23,000 with a pause around 23,500 levels.

A corrective rally in the index can encounter resistances at 24,400 and 24,500 levels. Strong rally beyond 24,600 will mar the short-term downtrend and take the index higher to 24,700 and 25,000 once again.

Subsequent key resistance is at 25,200 levels. Traders should trend with caution as long as the key support at 23,800 holds. Strong fall below this level will be cue for going short with a tight stop-loss.

Sensex (31,283.7)

Last week, the Sensex underperformed the Nifty and fell 638 points or 2 per cent. Similarly, the Sensex has also formed the bearish reversal pattern with neckline around 31,100. The index now tests a major support in the band between 31,000 and 31,150. Conclusive downward break of 31,000 can pave for a down move to 30,500 and 30,000 levels in the medium term.

A corrective rally from the immediate support will test resistances at 31,800 and 32,000 levels. Strong rally beyond 32,000 will weakenthe downtrend and take the index northwards to 32,250 and 32,500 in the medium term.

Decisive breakthrough of 32,500 is required to reinforce the bullish momentum and take the index higher to 32,700 and 33,000 levels.

Global cues

The Dow Jones Industrial Average marginally advanced last week amid volatility, adding 55 points to close at 22,405. Nevertheless, the indicators in the daily and weekly chart display signs of weakness.

The index tests resistance at 22,400 now. An emphatic break above this level is needed to push the index higher to 22,500 levels. On the other hand, plunge below 22,200 levels can pull the index down to the key support level of 22,000 in the short term.

The Nikkei 225 index rose 59 points in the midst of choppiness, to close at 20,356.

The index continues to tests the major resistance at 20,300 levels. Breach of this barrier can take the index northwards to 20,500 in the short term.

Also, failure to sustain the bullish momentum can drag the index down to 20,000 and 19,900 levels in the same period.

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Published on September 30, 2017
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