Technical Analysis

Index Outlook: Key indices stare at barrier ahead

Yoganand D BL Research Bureau | Updated on July 26, 2021

The Sensex and Nifty 50 are range-bound and have paused at the upper band. Stay alert

 

In a truncated week, domestic benchmark indices, the Sensex and Nifty 50, followed weak global cues and tumbled initially. But subsequently they bounced up strongly in line with the global markets’ strong recovery. The week ahead will be crucial and volatility is likely to persist ahead of July month derivatives expiry. The focus will be on the Q1 earnings announcements of bluechip stocks and global markets.

Nifty 50 (15,856)

Following an initial sell-off on the back of global markets’ decline, the Nifty 50 index found support at the intraweek low at 15,578 last Tuesday and recouped most of the initial loss thereafter. The 50-day moving average had cushioned it at the intraweek low. But the index ended the week on a marginally negative note, declining 67 points or 0.42 per cent.

The week ahead: Last week’s volatility has kept the Nifty 50 index range-bound and delayed its upward breakthrough of the sideways range. Since early June, the index has been in a sideways consolidation phase broadly in the band between 15,500 and 15,900. It managed to close above the 21-day moving averages. Going forward, the index faces resistance ahead at round 15,900. A strong breach of this hurdle can take it northwards to the 16,000-mark, a psychological resistance. A decisive breakthrough of this level will strengthen the bullish momentum and push the index northwards to 16,200 and then to 16,400-16,500 zone over the short term.

Conversely, if the index fails to move beyond 16,000 levels, it can witness corrective decline and test supports at 15,700, 15,635 and then at 15,500 levels. We reaffirm that an emphatic fall below the crucial support level of 15,500 will start weakening the uptrend that started from the April low of 14,151. Subsequent supports at 15,300 and 15,000 levels will come to the rescue. As long as the index trades above the support level of 14,800 the short to medium-term uptrend will remain intact. A strong plunge below 14,800 will undermine the uptrend and drag the index lower to the next supports at 14,500 and then at 14,200. Supports thereafter are placed at 14,000 and in the 13,500-13,600 band.

Medium-term outlook: With the medium to intermediate-term uptrend that has been in place from the December 2020 low of 13,131, the index has been taking a pause in the form of sideways movement from early June. We reiterate that this primary uptrend will remain intact as long as the index trades above the dynamic support level of 14,000. Medium-term supports at 15,500 and 15,000 can cushion a corrective decline. A decisive slump below 14,000 will alter the medium-term uptrend for the index and drag it lower to the 13,500-13,600 band and then to 13,000 levels over the medium term.

But a strong break-out of the 16,000-mark can bring back bullish momentum and accelerate the index higher to 16,500 levels over the medium term.

Sensex (52,975.8)

Amid volatility, the Sensex has declined 164 points or 0.3 per cent in the past week. On the downside, 52,000 is a vital base that had cushioned the benchmark index in the previous week. The index continues to test resistance at 53,000 levels. An emphatic break above this level can take it higher to 53,500 and then to 54,000 levels over the short to medium term.

 

Near-term supports at 52,370 and 52,000 that provided base in the past week will continue to act as key supports for the index. Only a strong fall below 52,000 levels will then start threatening the short-term uptrend and drag the index lower to 51,400 and then to 51,000 levels in the short term.

As long as the index trades above the 50,000-mark, the short to medium-term uptrend that commenced from the April low at around 47,204 will stay in place. However, an emphatic plunge below this base level will start altering the uptrend and pull the index down to the next supports at 49,000 and then to the 47,700-48,000 band. Investors with a long-term perspective can stay invested with a long-term stop-loss at 42,000.

Nifty Bank (35,034.4)

Last week, Nifty Bank tumbled 717 points or 2 per cent in the midst of choppiness. On the weekly chart, the index has formed a spinning top candlestick pattern, indicating indecisiveness. Key immediate resistance at 35,350 and a strong rally above this level can take it higher to 35,750 and then to 36,000 levels. A breakthrough of this barrier can push the index northwards to 36,500 on the back of bullish momentum. Traders with a high risk appetite can consider taking fresh long positions with a fixed stop-loss on an up-move above 35,350 levels. A further break above 36,500 will strengthen the uptrend and take the index to 37,000 and then to 38,000 over the short to medium term.

On the downside, the key supports are at 34,750 and 34,500. The index needs to conclusively decline below 34,000 levels, to alter the uptrend that began from the April low of 30,405 levels.

Next supports are placed at 33,000 and then to 32,000 that will come into play over the medium term.

Published on July 24, 2021

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