Technical Analysis

Index Outlook: Indices poised at trend-deciding levels

Yoganand D | Updated on January 08, 2018

Last week, the Nifty and Sensex bounced back on positive global cues

Positive cues from other Asian markets and an upbeat US market on the back of buoyant US data and hopes of tax reform, triggered the rally in the domestic market. The RBI left the policy rate unchanged, as was broadly expected. Higher September auto sales numbers on the back of festival season and recovery in the rupee also fuelled the market’s rally.

Bringing significant relief to small and medium businesses and exporters, the Goods and Services (GST) Council on Friday finalised a slew of relaxation measures. This could also trigger a positive impact on the domestic markets, ahead of the festival season. However, the upcoming September quarter earnings season hold the key and will give a clear direction to the markets.

Nifty 50 (9,979.7)

Last week, the Nifty 50 index surged 191 points or 1.95, recouping the fall of 1.7 per cent, the week before. The index has reversed, breaching its immediate resistance at 9,900 levels. However, it now tests its 21 as well as 50-day moving averages and faces a key psychological resistance ahead at 10,000.

Short-term view: The short-term downtrend that has been in place over the past three weeks in under threat at this juncture. After taking support in the range of 9,700 and 9,750, the index is in a corrective up-move. That said, the index is poised at a crucial trend-deciding zone.

The relative strength index is moving higher in the neutral region towards the bullish zone, while the weekly RSI is on the brink of re-entering the bullish zone from the neutral region. Similarly, the daily price rate of change indicator is moving higher and the weekly price ROC is about to enter the positive terrain, indicating buying interest.

An emphatic break above 10,000 will alter the short-term downtrend and take the index northwards to the next resistance in the 10,130-10,170 band. Further rally beyond this hurdle can push the index higher to the subsequent resistances that are placed at 10,200 and 10,300.

An emphatic break above 10,000 will also negate the formation of the double-top pattern mentioned last week. Traders with a short-term view should tread with caution at this juncture. Consider going long on a decisive rally above the 10,000-mark with a fixed stop-loss at 9,900 levels. Nevertheless, inability to move beyond the 10,000-mark can pull the index down to 9,900 and 9,800 in the ensuing week. Next significant supports are pegged at 9,750 and 9,700. An emphatic downward breakthrough of 9,700 is required to strengthen the downtrend and pull the index down to the next key support levels of 9,500 and 9,400 in the short to medium term.

Medium-term view: The are no major changes in the medium-term view as the index continues to trend in the sideways consolidation wide band between 9,700 and 10,130 since early July.

Conclusive downward break of 9,700 will mitigate the sideways trend and pull the index down to 9,400 and 9,300 levels in the medium term.

On the other hand, an emphatic upward break of the significant resistance level of 10,130 can accelerate the index higher to 10,200. Further rally will reinforce the bullish momentum and take the index to uncharted territory to 10,500 and 10,854 levels over the medium term.

Nifty Bank (24,190)

Though the Bank Nifty advanced 137 points or 0.6 per cent, it has underperformed the broader bellwether indices last week. The corrective rally in the index lacks strength. The index now tests resistance at 24,200, while the key near-term resistances are at 24,400 and 24,500. Strong rally beyond 24,200 can lead the corrective rally higher to 24,500 in the near term.

The 21 and 50-day moving averages are placed at 24,450 levels. The short-term trend will remain down as long as the index trades below 24,600 levels. Only a strong rally above 24,600 will change the short-term downtrend and push the index northwards to 24,700 and 25,000. Conversely, if the index fails to move beyond the 24,500, a downward reversal is possible and the index can slip to test support at 24,000. Next key support is at 23,800. Decisive plunge below 23,800 can drag the index down to 23,500 and 23,000 levels. Traders with a short-term perspective can remain cautious in the coming week as well.

Sensex (31,814.2)

The Sensex added 530 points or 1.7 per cent in the previous week. However, the index faces a key resistance ahead at 32,000, which is also a significant short-term trend-deciding level. The 21 and 50-day moving averages are positioned at 31,860 levels. Inability to break above the key barrier at 32,000 can pull the index down to 31,500 and 31,100 in the ensuing weeks. But a strong rally beyond 32,000 will alter the short-term downtrend and push the index higher to 32,250 and 32,500 in the medium term. Further, breakthrough of 32,500 can strengthen the bullish momentum and pave way for an up-move to 32,700 and 33,000 levels. On the downside, the index has a medium-term support in the band between 31,000 and 31,150. A strong downward break of 31,000 can drag the index lower to 30,500 and 30,000 levels in the medium term.

Global cues

The Dow Jones Industrial Average conclusively breached the key immediate resistance level of 22,400 and gained 368 or 1.65 per cent last week to close at 22,773.6. With this rally, the weekly indicators have entered the overbought territory, implying that a near-term correction is due in the index. Such corrective decline can pull the index down to 22,600 and 22,500 levels. Next key supports are placed at 22,400 and 22,300. Resistances to note are at 22,800 and 23,000 of the index.

Last week, the Nikkei 225 index followed the US markets and jumped 1.65 per cent to close at 20,690 levels. The index has breached its immediate resistance at 20,300 which has turned into a key base now. Any corrective fall can find base at 20,300. Next support is at 20,000. Continuation of the up move can encounter hurdle at 20,800 and 21,000 in the near term.

Published on October 07, 2017

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