Technical Analysis

Index Outlook | Sensex, Nifty 50 poised at key supports

Yoganand D | Updated on November 01, 2020 Published on October 31, 2020

The Sensex and the Nifty 50 have been on a corrective phase over the past three weeks

Both the benchmark indices — the Sensex and the Nifty 50 — experienced sharp falls amid volatility last week.

In the coming week, the focus will be on the US Presidential election. That could keep the global as well as local equity markets volatile.

The September quarter results of domestic companies will also need to be watched.

 

Nifty 50 (11,642.4)

After testing a key resistance at 12,000 — also a psychological hurdle — in mid-October, the Nifty 50 plunged sharply last week. It declined 287 points, or 2.4 per cent, breaching a key support at 11,800.

Week ahead: Witnessing selling interest at higher levels, the Nifty 50 index plunged last week. It has breached the 21-day moving average and now tests the 50-day moving average and a key support at 11,600 levels.

A negative divergence on the weekly relative strength index (RSI) has backed the recent trend-reversal. Over the past three weeks, the index has been on a corrective decline.

A decisive fall below the current base level of 11,600 will mitigate the uptrend that had commenced from the late September low of 10,790 levels. Such a fall can pull the contract down to 11,400 and then to 11,200 levels.

A further fall below the second support can drag the index down to the psychological base level of 11,000.

The daily RSI features in the neutral region and the weekly RSI has entered the neutral region from the bullish zone. That said, the short-term uptrend will remain in place as long as the index trades above the significant support level of 11,000.

The next supports are placed at 10,750 and 10,500 levels.

On the upside, an emphatic rally above the immediate resistance level of 11,800 is needed to bring back bullish momentum and push the index northwards to test the crucial barrier at 12,000. A decisive breakthrough of this resistance is required to strengthen the bullish momentum and take the index higher to 12,200 and then to 12,400 levels over the short term.

An upward bounce from the current support level of 11,600 can keep the index in a sideways movement in the band between 11,600 and 12,000 for a while before it takes a clear direction.

Medium term: The index has been on a medium- to intermediate-term uptrend since it took base at the March low of 7,511.

However, it failed to breach the significant resistance level of 12,000, and has been on a corrective decline over the past three weeks.

A conclusive fall below the key medium-term support level of 11,500 can drag the index down to the next one at 11,000. On further declines below the vital support of 11,000, the medium-term uptrend will start weakening, and the subsequent support that could come to the rescue are placed at 10,600 and 10,200.

A decline further below these supports can pull the index down to 10,000 and then to 9,800 over the medium term.

Conversely, a strong break above the resistance level of 12,000 can reinforce the uptrend and push the index higher to a lifetime high of 12,430 over the medium term.

Sensex (39,614)

Last week, the Sensex retreated and slumped 1,071 points, or 2.6 per cent, diving below the crucial support level of 40,000. The index tested a key resistance at 41,000 that has limited its upside in recent times, and began to decline in the previous week.

We reiterate that a strong breakthrough of 41,000 levels can bring back bullish momentum and push the index northwards to 41,700 and then to 42,000 over the short to medium term.

The index has failed to take support at 40,000 and has fallen below this base. It now tests the next base at 39,660.

A decisive slump below this level and the medium-term support level of 39,500 can drag the index down to 39,000 over the short term.

The next supports are at 38,500 and 38,000.

An emphatic fall below the key base level of 38,000 will mar the uptrend that had started from the September low of 36,495.

The subsequent supports are placed at 37,500 and 37,000.

As long the index trades above the trend-deciding level in the 36,500-36,600 zone, the medium-term trend will stay positive. The support thereafter is pegged at 36,000.

Investors with a long-term perspective can remain invested with a stop-loss at 35,000.

Nifty Bank (23,900.9)

The Nifty Bank index failed to test a resistance at 25,000 last week and reversed direction from around 24,800 levels.

The index has breached a key support at 24,000. Continuation of the down-move can pull the index down to 23,500 and then to 23,000 levels in the ensuing weeks.

Having said that, the short-term uptrend that began from the September low will stay intact as long as the index trades above the key support level of 23,000. But a plunge below this support will alter the uptrend and drag the index lower to 22,350 and then to 22,000.

On the other hand, an upward reversal from the current levels can take the index higher to 24,500 and then to 24,800 or 25,000 over the short term.

The index is currently hovering at crucial levels and the next week’s move will be vital in determining the next short-term trend. Traders with a short-term view should tread with caution.

A significant break above 25,000 will pave the way for an upmove to 25,500 and then to 26,000 in the medium term.

Global cues

The Dow Jones Industrial Average plummeted 1,843 points, or 6.5 per cent, breaking below a key support at 27,200 to close at 26,501. The index tests a support at 26,500.

A strong fall below this base can drag the index down to 26,000 and then to 25,500 levels. Key resistances are at 27,200 and then at 27,500 levels.

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Published on October 31, 2020
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