Technical Analysis

Index outlook: Mount 16K in sight for Nifty

Yoganand D BL Research Bureau | Updated on July 17, 2021

Q1 earnings announcements of bluechip companies could be drivers for the benchmark

The Sensex and the Nifty 50 reversed from the key base and began to move higher but face a crucial resistance at current levels. In the truncated week ahead, the highlight will be on the first quarter earnings announcement of bluechip companies, which could be drivers for the benchmark indices.

On the global front, the US market will focus on the earnings season along with economic reports on housing starts and existing home sales.

Nifty 50 (15,923.4)

Last week, the Nifty 50 index took support at 15,644, just above a key base level of 15,635, and started to trend upwards. The index has advanced 233 points or 1.49 per cent and has closed above the resistance level of 15,800 on the back of buying interest.

The week ahead: The index is likely to move out of the short-term sideways movement that has been in place since early June, on the upside. A close above 15,800 and the 21-day moving average is positive from the near-term perspective. The daily relative strength index has entered the bullish zone from the neutral region. However, the index faces a key barrier ahead at 16,000, a psychological resistance to note. An emphatic break above this level will reinforce the bullish momentum and take the index higher to 16,200 and then to 16,400-16,500 zone in the short term.

On the downside, the immediate support is at 15,800 and a slip below this level can extend the corrective decline to the subsequent supports at 15,635 and 15,500 levels.

We reiterate that a clear slump below the vital base of 15,500 will start undermining the uptrend that commenced from the April low of 14,151. In that case, the corrective down-move can test supports at 15,300 and 15,000 levels in the coming weeks.

This uptrend will remain in place as long as the index trades above the support level of 14,800.

Only a decisive drop below this base level will start threatening the uptrend and pull the index down to the subsequent supports at 14,500 and then at 14,200. Thereafter, supports are pegged at 14,000 and in the 13,500-13,600 band.

Medium-term outlook: The index has been in a medium to intermediate-term uptrend from the December 2020 low of 13,131. It has been in a pause or taking a breather since early June with the primary uptrend.

As long as the index trades above the dynamic support level of 14,000, the medium-term uptrend will remain intact. Crucial supports 15,500 and 15,000 can provide base in case of a corrective decline.

We restate that only a conclusive fall below 14,000 will change the medium-term uptrend for the index and drag it lower to the 13,500-13,600 band and then to 13,000 levels in the medium term.

A decisive breakthrough of the barrier at 16,000 it will reinforce the uptrend and take it northwards to 16,500 levels over the medium term.

Sensex (53,140)

The Sensex went up 753 points or 1.44 per cent in the past week and closed at record highs. The index now tests resistance at 53,000 levels even though it has marginally closed above this level. A clear breach of this hurdle can pave way for an up-move to 53,500 and then to 54,000 levels over the short to medium term.

The daily and the weekly RSI features in the bullish zone. Besides, the daily as well as the weekly price rate of change indicators hovers in the positive terrain, implying buying interest. Near-term supports are 52,370 and 52,000 and can provide cushion for the index.

On the downside, if the index conclusively declines below 52,000 levels, it will then start weakening the short-term uptrend and pull it downwards to the support level of 51,400 and then to 51,000 levels in the ensuing weeks.

The short to medium-term uptrend that began from the April low at around 47,204 will remain intact as long as the index trades above the 50,000-mark.

A strong downward breakthrough of the support at 50,000 will start altering the uptrend and drag the index lower to the supports at 49,000 and then to the 47,700-48,000 band. Investors with a long-term perspective can stay invested with a revised long-term stop-loss at 42,000.

Nifty Bank (35,751.8)

The Nifty Bank advanced 679 points or 1.9 per cent in the past week and has closed above the crucial resistance level of 35,650 levels.

However, on Friday, the index slipped marginally by 0.4 and formed a bearish engulfing candlestick pattern, indicating minor corrective decline is possible. But an emphatic breakout of the vital hurdle at 36,000 will underpin the bullish momentum and take the index northwards to 36,500. Traders with a high risk appetite can initiate fresh long positions with a tight stop-loss on a decisive rally above 36,000 levels.

A further breakthrough of 36,500 will accelerate the index upwards to 37,000 and then to 38,000 over the short to medium term.

Conversely, if the index declines below the immediate support level of 35,350, it will drag the index lower to 35,000 levels.

Next support is at 34,700 and 34,500 levels. To alter the medium-term uptrend that started form the April low of 30,405 levels, the index needs to emphatically fall below 34,000 levels.

Such a downward break can pull the index down to 33,000 and then to 32,000 over the medium term.

Published on July 17, 2021

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