Technical Analysis

Index Outlook: Key indices take a breather

Yoganand D | Updated on October 26, 2019

Both the bellwether indices stayed range-bound this week. Stay cautious

It was a volatile week for the Sensex and the Nifty as they moved sideways in a narrow range, after a strong rally the week before. There appears to be some profit-taking at this juncture as the benchmark indices continue to test key resistance level. The long weekend ahead also kept the indices range-bound. Mixed results from bluechip companies is also a factor that kept them sideways. The muhurat day trading on Sunday can set the trend for the rest of the week. A strengthening rupee against the dollar and the October month auto sales numbers will also be keenly watched. The October contracts are also set to expire this week, which may usher in some volatility.

Nifty 50 (11,583.9)

The Nifty was choppy and traded in a narrow band, closed the week in negative, declining 77 points or 0.67 per cent. The index moved sideways and the upside was limited at 11,700 levels and downside was capped at around 11,500. It managed to stay above the key level of 11,500. The short-term trend has been up since the mid-September low of 10,670. Currently, the index is pausing after another sharp rally the week before. It continues to trade above the 50- and 200-day moving averages. The daily relative strength index (RSI) tests the 60-level, a rally above this will maintain the bullish momentum. The weekly RSI is charting upwards in the neutral region. Besides, the daily as well the weekly price rate of change indicators feature in the positive terrain, implying buying interest.

Any corrective decline below 11,500 can find support at 11,300 levels. The short-term uptrend will stay intact as long as the index trades above the subsequent base level of 11,100. A strong break above 11,700 will strengthen the uptrend and accelerate the index higher to the next key barriers at 11,800 and 12,000 levels in the short term. That said, the inability to move beyond 11,700 will keep it range-bound between 11,500 and 11,700 for a while. On the other hand, only a decisive fall below the psychological support at 11,000 will alter the uptrend and drag the index lower to 10,800 and 10,700 levels.

Medium-term trend:

The medium-term downtrend that had been in place from the new high recorded at 12,103 in early June this year, came to an end recently. Continuation of the upward journey in the index can pave way for it to record new highs in the medium term. However, the index can encounter hurdles at 11,800 and the key psychological level at 12,000. Subsequent resistances above these levels are at 12,100 and 12,200.

Inversely, extension of the corrective decline can pull it to the support at 11,300, which is a crucial level to note. We reiterate that a strong fall below the medium-term support at 11,000 is needed to alter the bullish stance and drag the index lower to 10,700 and 10,600 in the medium term.

Sensex (39,058)

The Sensex ended the week marginally in red by declining 240 points or 0.6 per cent. The short-term trend is up and the index trades well above the 50- and 200-day moving averages. Currently, it tests a vital resistance at 39,400. We reaffirm that a conclusive break above this level can take the index northwards to the 40,000 mark and thereafter, it can record new highs over the medium term.

Conversely, if the corrective decline hangs on for a while, then key support at 38,500 can provide base initially and then at 38,000 levels. A strong fall below 37,500 will be a threat to the on-going short-term uptrend. In that case, the index can decline to test subsequent supports at 37,000 and 36,600 levels in the short term. Investors with a medium-term perspective can remain invested with a stop-loss at 36,400 levels.

Nifty Bank (29,395.9)

In the midst of volatility, the Nifty Bank index managed to outperform the benchmark indices this week. It advanced 275 points or 0.95 per cent. The index has formed a spinning top candlestick pattern on the weekly chart depicting indecisiveness. Now the index tests a vital resistance at 29,500, after breaching the key barrier at 29,000 recently, which is currently acting as the base. The daily RSI is likely to enter the bullish zone from the neutral region and the weekly RSI will continue to hover in the neutral region with a positive bias. The buying interest is visible because the daily price rate of change indicator has entered the positive terrain, but its weekly counter-part is still in the negative terrain.

An emphatic break above 29,500 will lead the index trend upwards to 30,000. A further rally beyond this level can push it higher to 30,500 and then to the September high of 30,801 levels in the ensuing weeks. Hence, traders with a short-term perspective should consider taking long positions above 29,500 while maintaining fixed stop-loss.

Conversely, if the index slumps below 29,000, it can decline to 28,500. But if the decline continues, subsequent support at 28,000 can provide base. A decisive plunge below 27,500 will bring back selling pressure and drag the index down to 27,000 and 26,500 over the medium term.

Published on October 26, 2019

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