Technical Analysis

Index Outlook: Nifty 50 faces key hurdle at 11,400

Yoganand D | Updated on March 07, 2020

The fear of coronavirus spreading will continue to weigh on the investor sentiment

It was an action packed week, both globally and locally, that kept indices volatile. The Sensex and the Nifty continued to trend downwards amid choppiness. The fear of spread of COVID-19 virus, made the Fed do an emergency rate cut for the first time since the 2008 financial crisis, causing further nervousness in the markets. On the domestic front, the YES Bank crisis, Nifty Bank plummeting over 4 per cent and the rupee deprecation, kept the selling pressure over the past week. In the ensuing truncated week, as the stock exchanges are closed on Tuesday on account of Holi, global cues can dictate the domestic market. The speed with which new COVID-19 cases are reported will dominate the sentiment. Hence, investors should tread with caution in the coming week.

Nifty 50 (10,989.4)

Amid choppiness, the Nifty extended the downtrend by declining 212 points or 1.9 per cent in the previous week. This fall has decisively breached a key support at 11,300 as well as the 61.8 per cent Fibonacci retracement level of the prior uptrend. The index appears to have completely retraced the prior uptrend as it recorded an intra-week low at 10,827 levels before staging a recovery on Friday. The index currently tests a vital medium-term support at 11,000 which is a psychological base that could provide temporary base now.

The week ahead: The index is poised at a key support level of 11,000. With the daily relative strength index hovering in the oversold territory and the breach of the lower boundary of the Bollinger Bands, near-term corrective rally can’t be ruled out at this juncture. The Nifty could stage a recovery and fill the recent gap that occurred on Friday. Hence, a rally to 11,200 and 11,300 possible in the short term. Having said that, the significant resistance at 11,400 also the floor of the gap happened in last February could act as crucial resistance and cap the rally initially. But an emphatic break above this barrier can bring back bullish momentum and push the index higher to 11,500 and then to 11,660 levels in the coming weeks. On the other hand, inability to move beyond 11,300 can keep the index in a sideways consolidation phase in the band between 10,800 and 11,300 for a while. A slump below 10,900 can take supports at 10,800 and 10,700 levels.

Medium-term trend: The medium-term trend has been down for the index since registering a new high at 12,430 in late January this year. As long as the index trades below the key resistance in the band between 11,660 and 11,700 the medium term downtrend will be in place. An emphatic break below the psychological support level of 11,000 can pull the index lower to 10,700, a key long-term base. Subsequent supports for the index are placed at 10,500 and 10,300. The long-term uptrend will be under threat only on a close below 10,300.

Conversely, a conclusive break above 11,700 can alter the downtrend and take the Nifty index northwards to 11,850 and then to 12,000. Next resistances are pegged at 12,200 and 12,350.



Sensex (37,576.60)

The Sensex nose-dived 720 points or 1.8 per cent in the past week, mainly dragged by the sharp drop of 893 points or 2.3 per cent on Friday. The index has breached a key base at 30,000. But, the volatile movement on Friday has formed a pattern that is similar to dragonfly doji pattern that is a bullish candlestick pattern. A decisive break above the immediate resistance at 38,000 can push the Sensex higher to 38,500 in the near term. As long as the index trades below the crucial medium-term resistance level of 39,500 short to medium term trend will remain down for the index. A tumble below the immediate base level of 37,000 can pull the index lower to 36,500 and then to 36,000 over the short term. Investors should avoid buying at this juncture as there are no clear signs of medium-term trend. Resistance above 38,500 is placed at 39,000.

Nifty Bank (27,801.4)

Last week, the Nifty Bank continued to trend downwards after an initial rally. The index had decisively breached key supports at 29,000 and 28,500 by tumbling 1,345 points or 4.6 per cent. With this fall the index has mitigated its previous uptrend and also completely retraced the prior trend. The index now tests a key support at around 27,700. It has breached the lower boundary of the Bollinger Bands and the daily relative strength index is hovering in the oversold territory that indicates the possibility of a corrective up-move.

A strong rally above the immediate resistance level of 28,000 can pave the way for an up move to 28,500 initially and then to 29,000. Only a decisive break above 29,000 can diminish the selling pressure and take the index northwards to 29,500 and then to 29,800 levels. The psychological resistance at 30,000 could act as vital barrier for the index where the 50 per cent Fibonacci retracement of the current downtrend coincides. A conclusive break above this level is needed to alter the downtrend and take the index northwards to 30,500 and 31,000 levels.

On the other hand, a slump below the immediate support level of 27,500 can drag the index downwards to 27,000 and then to 26,640 in the ensuing weeks. We reiterate that traders with a short-term perspective should continue to tread with caution.

Global cues

The Dow Jones Industrial Average index was volatile in the past week and managed to end the week on a positive note despite tumbling 256 points or 1 per cent on Friday. The index has gained 445 points or 1.8 per cent to close at 25,864.78.

The index tests a key support at 25,500. A fall below this base can intensify the selling pressure and drag the index lower to 25,220 and then to 25,000. Subsequent support is at 24,700. Immediate resistances at 26,100 and 26,500 can limit the upside initially. But a decisive break above these barriers can pave way for an up-move to 27,000 over the medium term.

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Published on March 07, 2020
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