Technical Analysis

Index outlook: Indices fail to break higher

Yoganand D | Updated on January 17, 2018 Published on August 21, 2016

PO22_Index_outlook

The Sensex and the Nifty may stay volatile and test key barriers on global cues

The lacklustre global cues kept the domestic benchmark indices on shaky ground. Last week, investors focused on July WPI inflation that surged to a two-year high on costlier food items, and a slowdown in industrial production growth. Moreover, the FOMC minutes that indicated that interest rate hike could happen sooner than later made global and local markets cautious.

But the Bank Nifty witnessed strong gains on rally in private sector banks and the news of SBI board approving the bank’s merger with its five associates. The global WTI crude oil extended its up-move by jumping 10.4 per cent to close at $49.1 a barrel last week. Interestingly, foreign portfolio investors (FPIs) continued to be net buyers in the equity markets last week too, despite volatile market. Global cues and expiry of August derivatives series could keep the indices volatile.

Nifty 50 (8,666.9)

Yet another week of volatile movement for Nifty 50. The short-term trend is up, but the index continues to test a key resistance at 8,700 level and faces resistance in moving beyond it.

This week: The index remained choppy in the truncated week ago and formed a doji candlestick pattern in the weekly chart, implying neutral stance. The index ended on a negative note, down by 5.3 points.

The daily relative strength index is on the verge of re-entering the bullish zone from the neutral region. But the daily moving average convergence divergence indicator is charting downwards, showing signs of negative divergence. Overall, the indicators and oscillators are displaying a mixed signal, which is uneasy.

The index has been on a sideways movement in the 8,500-8,700 range, after crossing the key level of 8,500 in early July. If the index manages to stay above this level, the possibility of an upward breakthrough of 8,700 will continue. In that case, the index can move to 8,800 in the ensuing week. Therefore, traders with a short-term view should tread with caution and go long above 8,700 while keeping a stop-loss at 8,650.

Nevertheless, inability to exceed 8,700 and a strong slump below the immediate support at 8,570 could threaten the positive stance and pull it down to 8,500. An emphatic downward breakthrough of 8,500 will bring back selling pressure. The index can then decline to 8,400 or 8,300 in the short term. Traders should avoid taking fresh long positions.

Medium-term trend: Over the last three weeks, the index has not made any strong movement. The weekly candlestick chart implies caution.

Strong start and a move beyond 8,700 can push the index higher to 8,800 levels. After that, key resistances are placed at 8,900 and 9,000. Investors with a medium-term horizon can stay invested with a stop-loss at 8,000. However, a weak beginning can drag the index below 8,600 and then to 8,500. A decisive tumble below 8,300 is needed to alter the medium-term uptrend and pull the index down to 8,100 and 8,000 levels. Next support is in the 7,700-7,800 band.

Sensex (28,077)

The Sensex fell 75 points and tests the vital resistance at 28,000.

This week: The index continues to test the key resistance in the band between 28,000 and 28,500. A strong breakthrough of this band is required to strengthen the medium-term uptrend and take the index higher to 29,000 and 29,500 in the upcoming months. But a bearish start can pull the index down to 27,500 and then to 27,000 in the near term. We reiterate that a downward breach of 27,000 can change the short-term uptrend and pull the index down to the 26,400-26,500 range in the short term.

Bank Nifty (19414.7)

The Bank Nifty gained 451 points or 2.4 per cent, breaching the key resistance at 19,000-mark in the previous week.

The index moved out of the sideways range between 18,500 and 19,000 decisively. Now, the 19,000-mark can act as a key support. Traders can hold their long positions with a stop-loss at 18,900. The index can extend and test the next resistances at 19,500 and 20,000 in the short term. Significant supports below 19,000 are at 18,500, 18,300 and 18,000 levels.

Global cues

Dow Jones Industrial Average slipped marginally in the previous week to close at 18552.5. The short as well as medium-term trends are up for the index. It tests the key resistance at 18,550. Strong rally above this level can take it higher to 18,622 and 18,700. Key supports are placed at 18,300 and 18,000.

Published on August 21, 2016

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