Technical Analysis

Index Outlook: Markets on shaky ground

Yoganand D | Updated on January 17, 2018 Published on August 28, 2016

Index outlook


The broader indices extended their fall for the second consecutive week

Caution ahead of Federal Reserve Chair Janet Yellen’s speech kept both global and domestic markets on tenterhooks. Worries over massive pull out of funds from emerging markets, post a hike in US interest rates, has once again taken centre-stage.

Yellen at the Kansas City Fed's annual Monetary Policy Symposium in Jackson Hole, Wyoming, on Friday, stated that monetary policy makers have sufficient tools to handle economic downturns “under most conditions”.

While the central bank promises to keep interest rates low, this does not rule out a September rate hike altogether. According to data compiled by Bloomberg, the probability of a hike at the September Fed meeting has risen to 38 per cent from 15 per cent two weeks ago.

On the domestic front, the appointment of Urjit Patel as the next RBI governor kept markets guessing on future rate cuts. Known for his fight on inflation, Patel’s possible hawkish stance kept sentiments wary.

The foreign portfolio investors (FPIs) remained net buyers in the equity market but they were net sellers in the debt market the previous week. Auto sales numbers for August are keenly awaited and could dictate market movement.

Nifty 50 (8,572.5)

Last week, the Nifty 50 index was choppy and fell 1 per cent. It closed below its 21-day moving average.

This week: Since early July, the index has been on a sideways movement within a narrow range of 8,500-8,700. The upper boundary at 8,700 continues to be a key hurdle and the index has been struggling to surpass it over the past month.

The index is likely to test the lower boundary this week. The possibility of staying above this support level is bleak. So traders with a short-term perspective should tread with caution and desist from initiating fresh longs as long as the index trades below 8,700 levels.

The daily indicators and oscillators are charting downwards, showing weakness. The daily rate of change indicator features in the negative territory implying selling interest. The 50-day moving average is poised just below the immediate key support at 8,500. A conclusive breach of 8,500 can strengthen the selling pressure and pull the index down to 8,400 and then to 8,300 in the short term. Traders with a short-term perspective can consider initiating fresh short positions on a decisive fall below 8,500 with a stop-loss at 8,600.

Medium-term trend: The hanging man candlestick pattern formed a couple of weeks ago has started to materialise now as the index begins to fall.

A weak startcan pull the index below 8,500 and then to 8,400. Having said that, a strong decline below 8,300 is needed to change the medium-term uptrend and drag the index lower to 8,100 and 8,000. Subsequent support is in the 7,700-7,800 band.

On the upside, a decisive breakthrough of 8,700 levels can take the index northward to 8,800. Key resistances to note are at 8,900 and 9,000. Investors with a medium-term perspective can stay invested with a stop-loss at 8,000

Sensex (27,782.2)

The Sensex declined 294 points or 1 per cent, breaching its 21-day moving average as well as a key level at 28,000.

This week: Last week, the index tested the key resistance in the 28,000-28,500 band and began to fall. The daily moving average convergence divergence indicator and price rate of change are charting downwards implying weakness. A negative beginning can pull the index down to 27,500 and then to 27,000 in the near future. Further slump below the 27,000 level can alter the short-term uptrend in the index and drag it down to the 26,400-26,500 range in the ensuing weeks. On the other hand, a emphatic breakthrough of the aforementioned resistance band is needed to reinforce the bullish momentum and push the index higher to 29,000 and 29,500.

Bank Nifty (19,195.7)

Last week, the Bank Nifty retreated 218 points or 1.1 per cent. The index hovers above a key support at 19,000-mark. The indicators and oscillators in the daily chart are trending down showing signs of weakness. Decisive fall below the immediate support at 19,000 can bring back selling pressure and pull the index down to 18,500 and then to 18,300 in the short term. Traders with a short-term view can consider initiating fresh short positions only on a strong fall below 19,000 with a stop-loss at 19,250. Next support below 18,300 is at 18,000. Resistances to watch are pegged at 19,500 and 20,000 levels.

Global cues

The Dow Jones Industrial Average index fell 157 points or 0.8 per cent last week to close at 18,395. The short uptrend is under threat as the index closed below its 21-day moving average. The medium-term trend continues to be up for the index. A fall below the immediate support at 18,300 can pull the index down to 18,000 in the near term. Key resistances to note are at 18,550, 18,622 and 18,700.

Published on August 28, 2016
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