Technical Analysis

Index Outlook | Key resistance limits upside in Sensex

Yoganand D | Updated on August 15, 2020 Published on August 15, 2020

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Sensex, Nifty 50 move sideways, face crucial barrier; investors should remain watchful

The bellwether indices — the Sensex and the Nifty 50 — were volatile last week and ended the week marginally in the red on the back of profit-booking and selling interest at higher levels.

The rupee movement against the greenback as well as the direction of global crude oil prices need to be watched in the coming week.

Nifty 50 (11,178.4)

The Nifty 50 index recorded an intra-week high at 11,373 and faced a key resistance in the band between 11,400 and 11,433. Thereafter, it moved sideways before declining 1 per cent on Friday. It dropped 35 points or 0.3 per cent in the past week. Although the short-term trend is up, it is showing an initial sign of weakness.

The week ahead: Both the short- and the medium-term uptrends are intact. Nevertheless, within the uptrend, the index has been in a sideways movement over the past one month.

This could be a corrective phase. The index has been range-bound between 10,900 and 11,400 over the past one month.

That said, a strong rally above 11,433 can reinforce bullish momentum and take the index northwards to 11,500 initially and then to 11,600 in the coming weeks.

The daily relative strength index (RSI) has moved back into the neutral region from the bullish zone and the weekly RSI hovers near 60 levels in the neutral region. The daily price rate of change indicator is charting downwards in the positive terrain and the weekly indicator is displaying negative divergence, implying likely trend-reversal.

An emphatic fall below the immediate support levels of 11,000 can pull the index lower to 10,900 or 10,850 levels. We reaffirm that a decisive fall below the 10,850 support can bring back selling pressure and will pave the way for a decline to the subsequent support level of 10,600.

Near to this levels, 10,500 is also a key base level to note, a decisive fall below which can pull the index down to 10,200 and then to 10,000 over the short term.

The short-term uptrend will remain intact as long as the index trades above the support level at 9800. The next supports are at 9,600 and 9,400 levels.

Medium term: Since the March low of 7,511, the Nifty 50 has been in a medium-term uptrend, and this trend has been intact. But the index now faces a crucial medium-term resistance at 11,400.

A strong breach of this hurdle will underpin the bullish momentum and take the index higher to 11,600 in the medium term. The vital resistance thereafter is placed at 11,850.

On the other hand, a fall below the immediate base level of 11,000 can witness a corrective decline within the overall uptrend. In that case, the index can extend the downmove to the medium-term support level of 10,500.

An emphatic decline below the psychological base level of 10,000 can reinforce the selling pressure and drag the index lower to 9,400.

Only a strong fall below 9,400 is needed to alter the uptrend. In that scenario, the next supports at 9,200 and 8,800 levels will come into play.

 

Sensex (37,877.3)

The Sensex encountered a crucial resistance at 38,500 once again and fell over 1 per cent on Friday.

For the week, the index dropped 163 points, or 0.4 per cent. A key resistance at 38,500 had limited the upside in late July as well.

Hence, a conclusive breakthrough of this barrier is needed to strengthen the bullish momentum and push the index northwards to 39,000.

The next resistances are at 39,500 and 40,000 levels.

Equally, if the index tumbles below the vital base level of 37,000 and the 200-day moving average, the corrective decline has the possibility to test the next support at 36,000 with a minor pause at 36,500 levels.

The next supports below 36,000 are at 35,500 and 35,000.

We reaffirm that as long as the index trades above the 35,000 mark, the short-term uptrend will stay intact. That said, a clear fall below 35,000 can witness selling pressure and the index can decline to 34,000. A further decline below this base can extend the decline to 33,000 and then to 32,500 levels over the medium term.

As long as the index trades above the 30,000 mark, the medium-term uptrend in place since the March low will remain intact.

The next supports are at 29,500 and 29,000. Investors with a long-term horizon can stay invested with a stop-loss at 30,500.

Nifty Bank (21,679.4)

Following an initial rally, the Nifty Bank index failed to surpass the key immediate resistance at 22,500 and plummeted 2.3 per cent on Friday, evaporating the initial gains. The index ended the week marginally in red, declining 74 points, or 0.3 per cent.

A strong move above 22,000, where the 21-day moving average is also poised, can bring back bullish momentum. Such an upmove can take the index higher to 22,500 and then to 23,000, which is a significant short-term resistance.

Only a breakthrough of 23,000 will reinforce the medium-term uptrend and take the index upwards to 23,500 and then to 24,000 over the short to medium term.

On the downside, the Nifty Bank tests a support at 21,500, and any slump below it can pull the index lower to 21,000. A further decline below this base can extend the decline to 20,500 and 20,000 levels over the short term. Traders with a short-term view can initiate fresh short positions on a decisive fall below 21,500 with a fixed stop-loss.

The uptrend that commenced from the May trough of 17,105 will be under threat if the index strongly plunges below 20,000. In that case, it can decline to 19,500.

The supports thereafter are placed at 18,000 and 17,000 levels.

Global cues

The Dow Jones Industrial Average extended the bullish momentum and gained 497 points, or 1.8 per cent, in the past week to close at 27,931 levels. This rally has breached a key resistance at 27,500, but the index now tests a resistance at 28,000.

A break above this level can push it northwards to 28,500 and then to 29,000 levels. Supports at 27,500 and 27,000 can provide base in case of corrective decline.

The next supports are at 26,500; 26,300 and 26,000.

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Published on August 15, 2020
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