Technical Analysis

Index outlook: Indices are still under pressure

Yoganand D | Updated on January 20, 2018 Published on June 19, 2016

U.S. Federal Reserve Chair Janet Yellen holds a press conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington March 16, 2016. REUTERS/Kevin Lamarque


Both indices are range-bound with a negative bias. Investors must continue to be cautious

The broader indices began last week with a gap-down opening on lingering Brexit fears and concerns over weak IIP data. But buying interest emerging at lows kept the pressure at bay, limiting the downside in both the Nifty and the Sensex.

Chinese economic data released last Monday added to worries that China's second-quarter GDP growth may be below expectations. At the end of a two-day US Federal Reserve meeting, the Fed decided to keep the rate unchanged. With this, the Fed’s plan for two hikes for the year has been scaled back on concerns of a lowdown in growth.

The BoJ’s decision to keep the rates steady was widely anticipated by the market participants. Amid significant global events, the Centre’s new Civil Aviation Policy and the Cabinet nod for merger of State Bank of India with its associates lifted the markets on Wednesday.

But mounting concerns on Brexit once again, capped the upside in the indices in the later part of the week. Foreign portfolio investors were net buyers in the equity markets in the previous week. Both the Nifty and the Sensex closed the week on a flat note, outperforming the global peers, which broadly ended on a negative note. In the coming week, the June 23 referendum over Britain exit from the European Union will be a significant event that could dominate the market and provide directions. Fed Chair Yellen's semi-annual testimony on Tuesday is also a key event.

Nifty 50 (8,170.2)

The Nifty index closed on a flat note, after recording an intraweek low at 8,063.9 and intraweek high at 8,213.2.

The week ahead: Taking cues from the global markets, the index witnessed selling pressure in the initial part of the week and declined to find support at the intra-week low.

Thereafter, the 21-day moving average also provided base for the index. On the other hand, the upside was limited. Over the past three weeks, the index has been on a sideways movement in the band between 8,050 and 8,300.

With the decrease in daily volume and the indicators in the daily chart trending down, the short-term uptrend is under threat. An emphatic downward breakthrough of the key base zone between 8,000 and 8,050 will bring back selling pressure and drag the index down to 7,900 and 7,800 levels. Inability to move beyond 8,300 will also signify weakness. Traders with a short-term perspective can initiate short position if the index fails to move beyond 8,300 levels with a fixed stop-loss, for the targets of 8,050 and 8,000 levels. That said, an emphatic breakthrough of the upper boundary at 8,300, will strengthen the bullish momentum.

A conclusive breakthrough of 8,300 is required to take the index higher to 8,400 and then to 8,500 in the short term. Crucial supports below 8,000 are at 7,900 and 7,800 levels.

Medium-term trend: The Nifty has been in a medium-term uptrend since late February this year. We reiterate that an emphatic break-out of the 8,300 level is needed to alter the intermediate-term downtrend in the index. Then, the index can trend upwards to the 8,500 and 8,600 range. Conversely, if the index witnesses a decisive downward break of the key support at 8,000, it can decline to 7,800 or 7,700 in the medium term.

The support band between 7,550 and 7,600 is the next trend-deciding level. Investors with a medium-term outlook can stay invested with a stop-loss at 7,700.

Sensex (26,625.9)

Taking support from the 21-day moving average at around 26,260, the Sensex recovered its intra-week losses and closed flat for the week.

The week ahead: The index has moved sideways over the past three weeks in the band between 26,250 and 27,000. Further, it has a key support at 26,000 which is a short-term trend-deciding level. A conclusive slump below this level can drag the index down to the next support levels at 25,800 and 25,500. However, strong breakthrough of 27,000 will bring back bullish momentum and push it higher to 27,500.

Further breakout of this level is required to reverse the intermediate-term downtrend and take the index northwards to 28,000 levels. Significant medium-term support is at 24,500.

Bank Nifty (17,696)

Last week, the Bank Nifty was choppy and fell 132 points or 0.7 per cent. The index has been range-bound between 17,400 and 18,000 over the last three weeks.

Conclusive breakout of the 18,000-mark will pave way for an up-move to 18,300 and then to 18,500 in the medium term.

On the other hand, downward break of the immediate support at 17,400 can pull the index down to 17,250 and 17,000 in the coming weeks. Traders with a short-term view should desist trading in the index as long as it is range-bound.

Global cues

The Dow Jones Industrial Average fell 190 points or 1 per cent last week to trade at 17,675. The index hovers above a key support at 17,500. Fall below this level can pull it down to 17,200 and 17,000 in the short term. Significant resistances to note are at 17,800 and 18,000.

Published on June 19, 2016
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