Technical Analysis

Index Outlook: Indices await fresh cues

Yoganand D | Updated on January 22, 2018 Published on September 26, 2015

NEW DELHI, 19/03/2013 : Main gate of the Reserve Bank of India, even as top bankers want RBI to cut repo rate by half a percentage point, in New Delhi on 19/03/2013. Photo: V_Sudershan

bl27_index outlook

The domestic market indices started the week on a negative note, due to weak global cues. Continuing with the downtrend, the indices took cues from the lacklustre Chinese September economic data released last week.

The preliminary Caixin China manufacturing purchasing managers' index (PMI) declined to a six-and-a-half-year low of 47 in September compared with a final reading of 47.3 in August. This set a weak tone for Asian stocks. The Volkswagen scandal triggered a fall in the European stock, which dragged other indices as well.

The global indices, however, witnessed a positive momentum on Friday and recovered some of its initial losses. But they ended the week on a negative note. The domestic markets were closed on Friday.

The monetary policy review scheduled on September 29, can set direction for the markets in the truncated week ahead. Slowing growth has led central banks across the world to adopt an easing policy. With domestic inflation trending lower, all eyes are now on the RBI’s rate action.

Both the Nifty and the Sensex are trading well below their 50 and 200-day moving averages following a volatile week. Over the past month, the indices have been hovering in a crucial zone between a key medium-term resistance and support level.

How they oscillate

The daily rate of change indicator has started moving downwards and is on the brink of entering the negative territory. Such an entry will imply selling interest. The relative strength index in the daily chart is also sloping down and the weekly RSI is on the verge of re-entering the bearish zone.

There is no change in the weekly moving average convergence divergence and the price rate of change, which features in the negative terrain, indicating that the medium-term trend will remain down. The monthly ROC that was poised on the zero line last week has entered the negative area implying downward pressure on the long-term trend.

Nifty (7,868.5)

The Nifty rose above the 8,000-mark on Tuesday and marked an intra-week high of 8,021 before slumping 2 per cent on that session. However, the index subsequently began to recover from an intra-week low of 7,723.2. The index recovered partial losses and ended the week 1.4 per cent lower.

The week ahead: The floor of the gap that occurred on August 24 continues to act as a significant resistance level. Also, the 8,000-mark is a key resistance which the index tested and fell forming a bearish engulfing candlestick pattern. This is a bearish reversal pattern, formed following a corrective up move from the early September ebb.

Therefore, a decisive rally above the immediate resistance levels of 8,000 and 8,060 is needed to signify that the index is turning bullish. On such a rally, the index can test resistances at 8,091 and 8,225 levels.

Moreover, an emphatic move beyond 8,200 will indicate that the medium-term trend is reversing upwards. The Nifty has a support at around 7,800. A strong dive below this level will strengthen the downtrend and pull the index down to 7,720 levels. A conclusive fall below 7,720 can drag the index down to 7,539 once again.

Medium-term trend: The medium-term trend remains bearish. The index faces a key resistance ahead at 8,060. Failure to move past this hurdle will imply that the index is trending downwards to 7,539 or 7,475. We reiterate that the index can turnaround in the band between 7,380 and 7,500. The outlook will worsen only on an emphatic fall below 7,400.

Sensex (25,863.5)

The Sensex did a volte-face after recording an intra-day high at 26,339 on Tuesday and closed below the 26,000-mark.

The week ahead: The Sensex can face resistance at 26,000 if it extends the rally. Next key resistances are pegged at 26,300, 26,687 and 26,730 (floor of the gap that happened in late August). A conclusive rally above these barriers will indicate that the medium-term trend is on the verge of reversing northwards. Having said that, a decline below the immediate support at 25,650 can pull the index down to 25,386. Subsequent supports are placed at 25,000 and 24,851.

Therefore, investors should desist from initiating fresh long position on a fall below 25,500. Next key medium-term base for the index is at 24,500. The range between 24,500 and 25,500 is a significant base zone for the Sensex.

Global cues

Last week, the global indices were choppy and closed on a negative zone. The Dow hit an intra-week high of 16,578 on Monday and started to fall. However, it rebounded from an intra-week low at 16,016 to close on a marginally negative note at 16,314, down 70 points for the week. Dow can decline to test its significant support at 16,000.

A conclusive fall below this level can pull the index down to its previous low at 15,370 in the short term.

The Nasdaq Composite has slumped almost 3 per cent last week and is heading towards the immediate support level of 4,550.

The Barzil’s Bovespa Index tumbled 5 per cent last week and is testing an important long-term support level at 45,000. An emphatic fall below this level can reinforce bearish momentum and drag the index down to 43,000 levels. Key immediate resistance is around 47,000.

Published on September 26, 2015
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