Technical Analysis

Index Outlook | Near-term outlook positive for Sensex, Nifty 50

Yoganand D | Updated on June 21, 2020 Published on June 20, 2020

Both the Sensex and the Nifty 50 witnessed a strong rally in the past week

Amid volatility, the bellwether indices — the Sensex and the Nifty — gained more than 2.5 per cent last week. Investors should tread with caution in the June expiry week. The rupee’s movement against the dollar will remain in focus along with the global crude oil price.

Nifty 50 (10,244.4)

Following an initial decline, the Nifty 50 found support at 9,800 and resumed the up-move.

It jumped 271 points, or 2.5 per cent, decisively breaking above a key resistance level of 10,000-mark. With the recent rally, the index appears to have resumed the short-term uptrend.

The week ahead: The corrective decline in the index found support at around 9,600 in the week before and it continued to trend upwards. It trades well above the 21- and 50-day moving averages.

The short-term trend that has been in place since mid-May is intact and the index has regained the bullish momentum. The index has managed to close above the key resistance in the band between 10,000 and 10,200.

It is likely to continue to trend upwards and reach the next key resistance level of 10,335 and 10,500 in the ensuing weeks. The daily relative strength index (RSI) has re-entered the bullish zone from the neutral region and the weekly RSI is charting higher in the neutral region.

Moreover, the daily and the weekly price rate of change indicators are featuring in the positive terrain, indicating buying interest.

On the other hand, any corrective decline from the current levels can find a support at 10,000 initially and then at 9,800 levels. A decline below 9,800 can pull the index lower to 9,600. A further decline below this base will mar the short-term uptrend and pull it lower to 9,400 and 9,000 levels. We reiterate that the medium-term uptrend will remain intact until the index trades above 8,800 levels. However, an emphatic slump below 8,800 can reinforce selling interest and take the index to 8,400 and 8,200 levels.

Medium term: The index managed to breach the vital resistance in the band between 10,000 and 10,200 in the past week. The medium-trend continues to be up for the index. It can gradually trend northwards and test the next key resistance at 10,500 in the medium-term.

The significant resistances thereafter are at 10,750, 10,830 and 11,000 levels. Conversely, a conclusive fall below the key short-term base level of 8,800 will weaken the medium-term uptrend and pull the index down to 8,400 or 8,000 levels.

Sensex (34,731.7)

The Sensexjumped 950 points, or 2.8 per cent, in the previous week, resuming the medium-term uptrend. It decisively breached a key resistance at 34,000 and continued to rally.

Nevertheless, the index faces a key barrier at 35,000. A strong break above this level can push the index northwards to 35,500 and then to the key medium-term resistance at 36,000 in the upcoming weeks. Having said that, any corrective decline can find support initially at 34,000.

A slump below this base can pull the index lower to 33,000 and then to 32,500 levels.

An emphatic fall below the 33,000-mark will weaken the bullish momentum and drag the index lower to 32,500 and then to 32,000. As long as the index trades above 32,000, the short-term uptrend will remain intact.

But a plunge below this support can witness a down-move to 31,000 and then to 30,000. The medium-term trend will be up as long as the index hovers above 30,000. The key supports below this level are at 29,500 and 29,000. Investors with a long-term view can remain invested with a stop-loss at 29,500.

Nifty Bank (21,338.1)

The Nifty Bank jumped 683 points, or 3.3 per cent, in the past week, outperforming the key benchmark indices. The index took support at around 19,500 and bounced back.

However, it currently faces a key resistance ahead at 21,500, which is the upper boundary of the sideways consolidation phase that has been in place since late March this year.

An emphatic break above 21,500 can take the index upwards to 22,000 and then to 23,000 over the medium term with a minor pause at around 22,500 levels. Traders with a short-term perspective should tread with caution as long as the index trades below 21,500.

An emphatic break above this hurdle can be a clue for initiating fresh long positions with a fixed stop-loss. The key supports are pegged at 20,500 and 19,500 levels. A strong fall below 19,500 can pull the index down to 18,000 and then to 17,000 over the medium term.

Global cues

The Dow Jones Industrial Average managed to advance 265 points, or 1 per cent, to close at 25,871 amid volatility. It now tests a key resistance at 26,500.

A strong break above this level can push the index northwards to 27,000. A further break above this level can push it higher to 27,500. Conversely, if the index plunges below the near-term support level of 25,500, it can move down to 25,000 and then to 24,500 over the short term.

Published on June 20, 2020
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