Technical Analysis

Index Outlook: Indices can remain range-bound

Yoganand D | Updated on October 12, 2019 Published on October 12, 2019

The Bombay Stock Exchange

Key support cushioned the benchmark indices last week. But traders must be cautious

The Sensex and the Nifty were volatile in the truncated past week, but managed to end on a positive note. But the Nifty mid and small cap index remained under pressure and closed the week on a mixed note.

All eyes are on India Inc’s second quarter earnings announcement, which can offer direction to the benchmark indices. The rupee remained range-bound against the greenback, while global crude oil gained marginally last week. Investors should tread with caution in the ensuing week.

On the global front, the US-China trade talks will continue to set the trend for emerging markets as well.

Nifty 50 (11,305)

After testing the key support at 11,100 the Nifty bounced back and closed the week with a gain of 130 points or 1.2 per cent. The index continues to test the 200-day moving average and faces a key barrier ahead at 11,400. It also has a significant medium-term resistance at 11,500. The short-term up-move that began in mid-September at a low of 10,670 will stay intact as long as the index trades above the vital base level of 11,100. Both the daily as well weekly relative strength indices hover in the neutral region without any bias, while other indicators are mixed.

A strong break above 11,500 can push the index higher to 11,700 levels. Such a rally will strengthen the uptrend and push the index up to the subsequent resistances at 11,800 and 12,000 levels over the short to medium term.

Conversely, a decisive plunge below the immediate support level of 11,100 can test the psychological base at 11,000. But a further fall below this base will mar the uptrend and drag the index lower to 10,800 and 10,700 once again in the short term.

 

 

Medium-term trend: The index continues to be in a medium-term downtrend that started from the new high recorded at 12,103 in early June. Recently, it tested the key medium-term trend-deciding level at 11,500 and is undergoing a corrective decline. Only an emphatic break above this hurdle will alter the downtrend and take the index upwards to the next crucial resistance level of 11,800 and 12,000, a psychological level over the medium term.

On the other hand, a strong decline below the key medium-term support at 11,000 can pull the index lower to 10,700. Any further fall can extend the downtrend to the subsequent supports at 10,600, 10,400 and 10,100 in the same time-frame.

Sensex (38,127)

The Sensex advanced 453 points or 1.2 per cent last week, after taking support at 37,500 levels. The index has been in a corrective decline over the past two weeks and the key support at 37,500 is providing base. On the other hand, the index faces a key resistance ahead at 38,500 and next hurdle is at 39,000.

An emphatic breakout of 39,000 will strengthen the near-term uptrend that has been in place since mid-September. Such an up-move will pave way for a rally to 39,400 and 40,000 levels over the medium term. Investors with a medium-term perspective can remain invested with a stop-loss at 36,400 levels.

Inability to move beyond 38,500 levels can keep the Sensex hovering in the 37,500-38,500 range for a while. On the downside, a conclusive plunge below 37,500 can drag the index lower to 37,000 and 36,600 levels in the short term.

Such a decline will mitigate the short-term uptrend and reinforce the bearish momentum. Subsequent supports are placed at 36,400 and 36,000.

Nifty Bank (28,042.5)

Amid volatility, the Nifty Bank managed to finish the week by advancing 310 point or 1.1 per cent. The index appears to have paused, looking for a clear near-term direction. Within the downtrend, it hovers in a broad band between 27,500 and 29,000.

A conclusive break above the 200-day moving average and the resistance at 29,000 can extend the corrective rally and take the index up to 29,500.

The daily as well as the weekly relative strength indices continue to feature in the neutral region. The short-term downtrend will be intact as long as the index trades below 29,500. We reiterate that a break above 29,500 will bring back bullish momentum and push it higher to 30,000 and 30,500 levels over the medium term.

That said, a slump below the vital support level of 27,500 can pull the index lower to 27,000 and 26,500.

Traders with a short-term perspective should tread with caution and avoid taking fresh positions as long as the index trades sideways in the band between 27,500 and 29,000.

Global cues

Following an initial decline, the Dow Jones Industrial Average took support at around 26,200 and bounced back. The index gained 242 points or 0.9 per cent amid choppiness last week to close at 26816.5. It tests a vital resistance at 27,000. A clear break above this level will strengthen the bullish momentum and push the index up to 27,300 and 27,500 levels in the short term. But failure to move beyond 27,000 can keep the index range-bound between 26,000 and 27,000. Key supports are at 26,500 and 26,200 levels. Subsequent supports below 26,200 are at 26,000 and 25,700.

Last week, the Nikkei 225 surged 388 points or 1.8 per cent to end the week at 21,798.8 levels. Significant resistance is at 22,000. Only a break above this level can push the index higher to 22,300 and 22,500 levels. Supports are at 21,500 and 21,300.

Published on October 12, 2019
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