Technical Analysis

Index outlook: Bumpy road to new highs

Yoganand D BL Research Bureau | Updated on June 05, 2021

26/08/2019 MUMBAI: A view of the BSE building in Mumbai, Monday, August 26, 2019. The BSE Sensex jumped over 700 points afternoon session. Photo. Paul Noronha   -  PAUL NORONHA

The Sensex and the Nifty 50 continued to trend upwards, continuing the up-move. Further, the Nifty midcap 100 index jumped 3.3 per cent and Nifty smallcap 100 index gained 2.4 per cent in the past week, increasing the bullish momentum. This momentum is likely to remain intact this week. On the other hand, the India VIX - volatility index, which has slumped 8.4 per cent and tests support at 15, is a cause for concern.

The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) stayed put on policy rates last week in the midst of slowing growth and inflationary pressures. Looking ahead, the appreciating rupee against the dollar and the increasing crude oil price need a close watch, along with monsoon and Covid-19 updates this week.

Nifty 50 (15,670.2)

Extending the up-move for the third straight week, the Nifty 50 advanced 234 points or 1.5 per cent in the past week and has kept the bullish momentum intact. The index has closed the week at record high.

The week ahead: Gaining strength, the Nifty 50 surpassed a key resistance at 15,500 and managed to close above 15,600 in the past week. Since the late April low marked at 14,151 the index has been in a short-term uptrend. Last week’s rally has strengthened the up-move. If the on-going rally continues, the index can encounter resistance ahead at 15,800 and then at 16,000 levels.

The index trades way above the 21- and 50-day moving averages. The daily as well as the weekly relative strength indices are featuring in the bullish zone. Further, there is buying interest evident as the daily and the weekly price rate of change indicators are featuring in the positive terrain. However, any corrective declines can take cushion initially at 15,500. A slump below this base can bring back selling interest and there could be some profit booking. In that case the index can decline to 15,200 and then to 15,000 levels, a psychological support to watch.

A further decline below 15,000-mark will start weakening the short-term uptrend and drag the index lower to 14,800. A decisive fall below this level will alter the uptrend and pull the index down to the next supports pegged at 14,500 and then at 14,200 levels. Subsequent crucial supports are placed at 14,000 and then the 13,500-13,600 zone will provide base.

Medium-term outlook: We reiterate that both the intermediate and the medium-term uptrends are intact for the index. The recent up-move has added strength to the uptrend. That said, investors should remain cautious as the index trades in uncharted territory. The medium-term uptrend that started from the December 2020 low of 13,131 continues to be in place. In the past week, the index trended northward and surpassed the key hurdles at 15,500 and 15,600 levels. Now these levels will act as support. With the bullish momentum the index has potential to trend northwards and tests resistances ahead at 15,800 and 16,000-mark.

On the other hand, as long as the index trades above the vital support of 14,000 levels, the medium-term uptrend remains intact. An emphatic downward breakthrough of this support can alter the uptrend and pull the index down to the 13,500-13,600 band and then to 13,000 levels over the medium term.

Sensex (52,100)

Last week, the Sensex continued its upward journey and climbed 677 points or 1.3 per cent. It is slightly hovering below the previous high recorded at 52,516 in mid-February this year. It managed to surpass the resistance at 51,400 in the past week. Nevertheless, the index now tests the crucial resistance at around 52,000 and also the previous peak will also act as hurdle. The index trades well above the 21- and 50-day moving averages. The daily and the weekly indicators are featuring in the positive territory. A strong rally above the current barrier at 52,000 and next 52,516 can take it higher to new highs. Subsequent resistances can be encountered at 53,000 and then at 54,000 over the medium term.

Conversely, a slump below the immediate base level of 51,400 can pull the benchmark index down to the next support level of 51,000. A further decline below 51,000 will experience profit booking and selling interest that can drag the index lower to 50,400 and then to 50,000 over the short term. A conclusive fall below the crucial support level of 50,000 will start threatening the short-term uptrend that has been in place from late April. Next supports are at 49,000 and then in the 47,700-48,000 band. Investors with a long-term perspective can stay invested with a long-term stop-loss at 41,000.

Nifty Bank (35,291.65)

In the midst of volatility, the Nifty Bank climbed 150 points or 0.4 per cent in the week ago and has underperformed the bellwether indices. The index was largely range-bound between 35,000 and 35,650 in the past week. Although the daily as well as the weekly relative strength indices are featuring in the bullish zone, they show signs of weakness.

The index managed to rally above the key resistance at 35,000 and marginally closed above this level. A decline below this level can witness selling interest and pull the index down to 34,660 and then to 34,000 in the short term.

A conclusive up-move beyond 35,650 can bring back bullish momentum and take the index northwards to 36,000 and then to 36,500 levels. In that scenario, traders can take fresh long positions with a fixed stop-loss. Conversely, a strong fall below 34,660 will be the cue for initiating fresh short positions with a fixed stop-loss. Vital supports below 34,000 are placed at 33,500 and 33,000 levels. A further decline under 33,000 will intensify the selling pressure and drag the index lower to 32,000 or even to 31,000 levels over the medium term.

Published on June 05, 2021

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