Technical Analysis

Index Outlook: Market puts up a resilient show

Yoganand D | Updated on January 20, 2018 Published on June 26, 2016



The indices have trimmed their losses and are poised to react to global cues

It was an action-packed week for the global financial markets, which ended by buckling under Brexit jitters. On Thursday, the Britain voted to leave the European Union, triggering a sell-off in equity markets from Asia to the US on fresh worries over global growth prospects.

Harried investors piled onto the gold as a safe haven that pushed prices of the precious metal to its highest level in almost two years. Japan's Nikkei 225 index futures surged more than 2 per cent; this could result in a positive start.

The Nifty and Sensex were down more than 3 per cent earlier on Friday. That the rupee depreciated against the US dollar, breaching a key level of 68 and closed at a four-month low also added selling pressure.

But the markets managed to recover some of the losses, as the government soothed frayed nerves. What helped markets recover before close was also the fact the some of the investors used this opportunity for value-buying.

Nifty 50 (8,088.6)

After an initial rise, the Nifty index recorded an intra-week high at 8,285 and then plunged to mark an intra-week low at 7,927, but recovery on Friday cut its weekly loss to just 1 per cent.

The week ahead: With the wide swings, the index has formed a spinning top candlestick pattern in the weekly chart, implying indecision. However, the strong bounce back from the intra-day low on Friday and a close above the key support level of 8,000 is a positive sign from a short-term perspective.

Formation of a hammer candlestick pattern with good volume in the last session, coupled with the fact that the medium-term up trend-line remains intact, can push the index higher in the coming week.

However, whether the index will breakthrough the key resistance at 8,300 is still a big question.

The index has key immediate resistances at 8,200 and 8,250 levels. Traders with high-risk appetite can initiate long positions with a stop-loss at 8,030 and exit at around 8,200.

Having said that, a plunge below the immediate support as well as 50-day moving average at 8,000 can strengthen the bearishness and drag the index down to 7,900 and 7,800 levels. But a decisive breakthrough of the vital resistance at 8,300 will reinforce the bullish momentum and take the index northwards to 8,400 and then to 8,500.

Medium-term trend: The index managed to keep its medium-term up trend-line intact last week. This has been in place since late February this year.

We restate that a strong rally beyond the 8,300 level is needed to change the intermediate-term downtrend in the index. Thereafter, key resistances 8,500 and 8,600 will come to play.

Nevertheless, if the index tumbles below 8,000 on global concerns, it can trend downwards to 7,800 and 7,700.

Investors with a medium-term perspective can remain invested as long as the index trades above 7,700. The next trend-deciding level is in the band between 7,550 and 7,600.

Sensex (26,397.7)

The index was volatile and fell 228 points or 0.9 per cent in the week gone by. On Friday, the index recovered and formed a hammer pattern which has near-term bullish implications.

The week ahead: Taking support at around 26,000, the index has reversed higher in the last session. The recovery can extend in the initial part of the coming week. The index can advance to encounter resistance at 26,730.

An emphatic break-out of the key resistance at 27,000 is needed to strengthen the uptrend and push the index upwards to 27,500. Inability to move beyond 27,000 will keep the sideways movement between 26,250 and 27,000 in place. On the downside, a conclusive fall under 26,000 can pull the index down to the next support levels at 25,800 and 25,500.

To alter the intermediate-term downtrend, the index needs to breach the 27,500 levels to advance to 28,000. Key medium-term support is at 24,500.

Bank Nifty (17,426)

Last week, the Bank Nifty was very volatile and fell 1.5 per cent forming a doji pattern in the weekly chart, implying neutral stance. The index took support at 17,000 and bounced up. Key immediate resistance is at 17,600.

A strong rally above this level will have bullish implications and take the index higher to 18,000 once again.

Traders with a short-term view should tread with care and initiate long positions above 17,600 levels while maintaining a fixed stop-loss.

Subsequent key resistances are placed at 18,300 and then at 18,500. Conversely, slump below the immediate support at 17,200 can pull it down to 17,000 or 16,900. Next supports are at 16,600 and 16,500.

Global cues

The Dow Jones Industrial Average plunged 1.6 per cent to close at 17,400 last week. It can extend its decline to test supports at 17,200 and 17,000 in the short term. Resistances are pegged at 17,600, 17,800 and 18,000.

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Published on June 26, 2016
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