Technical Analysis

Index outlook: Nifty can test psychological barrier of 16,000

Yoganand D BL Research Bureau | Updated on June 28, 2021

Besides macro indicators, weakening rupee and heating up WTI crude oil need a close watch

 

The benchmark indices gradually progressed northwards last week, gaining over 1 per cent.

The Sensex and the Nifty 50, bounced from the intraweek low recorded on Monday and ended the week on a positive note amid mid-week volatility. In the ensuing week, the focus will be on the macro indicators such as PMI, fiscal deficit and trade deficit along with the auto sales numbers for the month of June. Also, weakening rupee against the dollar and heating up WTI crude oil prices need a close watch.

On the global front, the US June non-farm payroll report and June ISM manufacturing report are the main economic releases that need to be focused on, along with the movement of the US benchmark indices.

Nifty 50 (15,860.35)

The week ago was volatile due to derivatives expiry. The Nifty 50 index commenced the week with a gap-down open and found support at 15,505 before recovering to fill the gap. Testing the resistance at 15,800, the index managed to close above this level, gaining 177 points or 1.13 per cent for the week.

The week ahead: With the bullish momentum, the index has potential to test the psychological barrier ahead at 16,000 in the near term. Immediate supports at 15,635 and 15,500 can provide base in case of a corrective decline. A strong downward plunge below the crucial support at 15,500 will start threatening the short-term uptrend and drag the index lower, experiencing a corrective fall to 15,300 levels.

A broad sideways consolidation in the band between 15,300 and 16,000 is possible if the index finds support at 15,300. Crucial support below 15,300 is at 15,000. We reaffirm that the short-term uptrend that has been in place since the late April low at 14,151 will be intact as long as the index trades above the 14,800 base level. An emphatic decline below 14,800 will undermine the uptrend and drag the index lower to the next supports at 14,500 and then at 14,200. Subsequent supports are placed at 14,000 and in the 13,500-13,600 band.

On the other hand, the index can test the key resistance at 16,000 in the near term and a further rally above this level can push it higher to 16,200 initially. Thereafter, a rally to 16,500 levels is possible provided the index sustains above 16,000 levels.

Medium-term outlook: The index continues to be in a medium-term uptrend since the December 2020 low of 13,131. With the index experiencing volatile movement over the past three weeks, the medium-term uptrend could be entering into a sideways consolidation mode. We reiterate that the medium-term uptrend remains intact as long as the index trades above the dynamic support of 14,000. Key medium-term supports are placed at 15,500 and 15,000 that could provide base in case of corrective decline. To alter the medium term uptrend, the index needs to conclusively decline below 14,000. In that case, it can decline to the 13,500-13,600 band and then to 13,000 levels over the medium term.

Conversely, if the index emphatically breaks above the vital hurdle at 16,000, it will strengthen the uptrend and pave the way for an up-move to 16,500 levels in the medium term.

 

Sensex (52,925.04)

Last week, the Sensex took support at 51,740 and bounced up. The index gained 580 points or 1.1 per cent the previous week and has closed above the vital hurdle at 52,500. Now, this level will act as a crucial support. However, the index currently tests the psychological resistance at 53,000. A clear break above this level will pave the way for an up-move to 53,500 and then to 54,000 levels in the ensuing weeks.

On the other hand, if the index slumps below the significant base level of 52,000, it will start weakening the short-term uptrend and drag the index down to the next vital support level of 51,400 and then to 51,000 levels in the short term. The short-term uptrend that started from the April low at around 47,204 will stay in place as long as the index trades above the 50,000-mark. An emphatic plunge below this base will start threatening the short-term uptrend and drag the index lower to the next supports at 49,000 and then to the 47,700-48,000 band. Investors with a long-term horizon can stay invested with a long-term stop-loss at 41,000.

Nifty Bank (35,364.65)

The Nifty Bank index took support at around 34,000 and bounced up strongly, gaining 806 points or 2.3 per cent in the past week. On Friday, the index advanced 1.5 per cent exceeding a key resistance at 35,000 as well as the 21-day moving average. Nevertheless, the index faces a crucial resistance at 35,650 from which it had reversed downwards in early June. A conclusive break above this level can take the index northwards to 36,000 and then to 36,500 levels over the short term. Traders can initiate fresh long positions on dips with a fixed stop-loss at 34,950 levels.

On the downside, if the index declines below the immediate support level of 35,000, it can bring back selling pressure and pull it lower to 34,550 and then to 34,000 in the short-term. A further fall below 34,000 levels will start weakening the uptrend that commenced from the April low at around 30,405 levels and drag the index lower to 33,500 and 33,000 levels. Next supports below 33,000 are placed at 32,000 and 31,000 levels.

Published on June 26, 2021

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