Technical Analysis

Index Outlook: Key hurdles can limit the rally

Yoganand D | Updated on April 17, 2021

Q4 earnings, along with progress in controlling Covid-19 spread, will be in focus

The mounting second wave of Covid-19 cases that could lead to a slowdown in economic activity, and the fear of probable lockdown in some parts of the country, triggered a sharp sell-off in the bellwether indices, the Sensex and Nifty 50, on Monday. But subsequent buying interest led a minor recovery in the indices. The Q4 earnings announcements of bluechip stocks will be in focus, along with progress in controlling Covid-19 spread.

 

Nifty 50 (14,617.8)

After a sharp plunge of 3.5 per cent last Monday, the Nifty 50 took support at around 14,250 and subsequently bounced up. The index had recovered some initial loss thereafter, but still finished the week in the negative territory, down by 217 points or 1.46 per cent.

The week ahead: Testing resistance at 14,870 for more than a week, the Nifty 50 index slumped on Monday but bounced back. The key support at around 14,250 had provided base. The index continues to trade below the 21- and 50-day moving averages.

It now tests resistance at 14,652, which is the floor of the gap that occurred on Monday. Thereafter, the index could re-test resistance at 14,870. A decisive rally above this level can take it higher to 15,000. An emphatic breakthrough of this barrier is required to reinforce the bullishness and push the index northwards to 15,200 and then to 15,400 levels in the short term. Failure to move beyond 15,000 can keep the index charting downwards and re-test support at 14,250 levels, which had cushioned the index in late March and early April this year. The daily relative strength index features in the neutral region and the weekly RSI is showing negative divergence, and is on the brink of entering the neutral region from the bullish zone.

A conclusive tumble below 14,250 can bring back selling pressure and drag the index lower to 14,000. A further decline below this base will strengthen the downtrend that has been in place from the February high of 15,431 and pull the index down to the subsequent support that is in the range of 13,500-13,600.

Medium-term outlook: An emphatic break-out of the key resistance at 15,000 will reinforce the medium-term uptrend that has been in place since the December 2020 low of 13,131 levels. Moreover, the intermediate-term trend has been up since the index took support at 10,790 last September. We restate that as long as the index trades above the crucial support level of 12,750, the intermediate-term uptrend will stay in place. A strong decline below this base is needed to undermine the uptrend and pull the index down to the next supports at 12,400, 12,260 and 12,000 over the medium term. A plunge below 14,000 will mar the medium-term uptrend and the index has possibility to test support in the 13,500-13,600 band. Next supports are at 13,330 and 13,000.

On the other hand, a clear breakout of 15,000 can take the index higher to 15,200 levels initially. A rally above this barrier can pave the way for an upmove to 15,500 and then to 15,600 over the medium term.

Sensex (48,832)

Last week, the Sensex had declined 759 points or 1.5 per cent amid volatility. Key support in the band between 47,700 and 48,000 had provided base for the index. The support band could continue to act as a key base. A strong slump below this base will reinforce the bearish momentum and strengthen the downtrend that has been in place from the February high of 52,516. In that scenario, the downtrend will undermine the medium-term uptrend and drag the index lower to 47,000 and then to 46,000 in the short term.

We reiterate that as long as the index trades above the vital support level of 45,000, the intermediate-term uptrend that started from the September 2020 low of 36,495 will remain intact. Subsequent supports are placed at 44,520 and 44,000.

On other hand, the index now tests resistance at 48,956 and a rally above this level can test resistance at 50,000. A conclusive breakthrough of the hurdle can bring back bullish momentum and take the index upwards to 51,000 in the short term. A conclusive breach of 51,000 levels can pave the way for an upmove to 51,400 and then to 52,000 in the ensuing weeks. An emphatic break-out of 52,000 is essential to reinforce the uptrend. In that case, the index can underpin the uptrend and pave the way for an upmove to 53,000 and then to 54,000 over the medium term. Investors with a long-term view can stay invested with a stop-loss at 40,000.

Nifty Bank (31,977.4)

In the midst of volatility, the Nifty Bank has declined 470 points or 1.45 per cent in the past week. Since the February high of 37,708.7, the Nifty Bank index has been in a short-term downtrend. The index trades well below its 21- and 50-day moving averages. However, it now tests a key medium-term support at 32,000. A rally above 32,500 can bring positive momentum and take the index higher to 33,000. A further break-out of 33,000 is needed to witness a corrective rally to 34,000 over the near term. Traders should tread with caution as long as the index trades below 33,000.

To alter the downtrend, the index needs to emphatically move beyond 34,000-mark. In that case, the index can trend upwards to 34,800-35,000 in the ensuing weeks. Next resistance is placed at 36,000; 36,500 and 37,000. We reaffirm that the intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will prevail as long as the index trades above 29,000. The supports thereafter are at 28,500 and 28,000.

Conversely, a strong downward break of the support at 32,000 can bring back selling interest and pull the index lower to 31,000 and then to 30,000 levels over the short term. Next supports are at 29,000 and 28,000 levels.

Published on April 17, 2021

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