Technical Analysis

Index outlook: Nifty faces resistance at 16,000

Yoganand D BL Research Bureau | Updated on June 12, 2021

Time to stay alert as profit-booking and selling pressure can emerge at higher levels

The Sensex and the Nifty 50 moved higher marginally last week, climbing about 0.8 per cent. On the other hand, the India VIX — volatility index, which is a measure of the market’s expectation of volatility over the near term, has tumbled 11.5 per cent to 14.1 and is hovering in the oversold territory. On the global front, US markets await the Fed’s meeting this week as they were largely range-bound in the past week. Also, US retail sales and industrial production data are reported in the week ahead.

Nifty 50 (15,799.3)

In the midst of volatility, the Nifty 50 continued to trend upwards the past week and added 129 points or 0.82 per cent. After a mid-week dip, the index managed to bounce back and ended the week at record high.

The week ahead: The index extended the up-move despite witnessing some selling interest. On Friday, it advanced 0.4 per cent and has formed a doji candlestick pattern, indicating a neutral stance. Although the index managed to climb higher, the indicators in the daily chart have not kept pace with the price and are displaying negative divergence. Therefore, a minor corrective decline can’t be ruled out. The week ahead is crucial for the index as profit booking and selling interest can emerge at the significant psychological resistance at 16,000. The index now tests resistance at 15,800 and a strong rally can test hurdle at 16,000. That said, an emphatic break above 16,000 is needed to strengthen the bullish momentum and pave the way for an up-move to 16,200 and then to 16,500 levels.

Conversely, if the index fails to move beyond the 16,000-mark it can experience selling interest and witness a minor corrective decline. Immediate supports at 15,500 can provide base. A fall below this level can pull the index lower to the crucial base level of 15,300. In that case it can move sideways in the wide range between 15,300 and 16,000 for a while.

The index has been in a short-term uptrend since the late April low marked at 14,151. As long as it trades above 14,800 levels, the uptrend will remain intact. But a conclusive fall below the 15,000-mark will start threatening the uptrend. A decisive fall below 14,800 will reverse the uptrend and drag the index lower to the next supports pegged at 14,500 and then at 14,200. Supports thereafter are at 14,000 and the 13,500-13,600 zone.

Medium-term outlook: As of now, both the intermediate and the medium-term uptrends continue to be intact for the index. But as the index is approaching a significant resistance ahead at 16,000-mark, it could be on the brink of forming a short-term peak. Hence, investors should tread with caution in the ensuing weeks. Since the December 2020 low of 13,131, the index has been in a medium-term uptrend. Immediate supports at 15,500 and 15,000 can cushion it in case of corrective decline. As long as the index trades above the dynamic support of 14,000 levels, the medium-term uptrend stays intact. A conclusive break below this support can change the uptrend and drag the index lower to the 13,500-13,600 band and then to 13,000 levels over the medium term. However, a decisive break-out of the significant resistance will reinforce the bullish momentum and take the index northwards to 16,500 over the medium term.

Sensex (52,474.7)

The Sensex climbed 0.7 per cent in the past week amid volatility and now tests resistance at around 52,500. The daily indicators and oscillators are displaying negative divergence. As the index is paused at around a key resistance, a minor corrective decline can occur if it slumps below the immediate base level of 52,000. Such a fall can drag the index lower to the next support level of 51,400 initially and then to 51,000 levels over the short term.

As long as the index trades above the key support level of 50,000, the short-term uptrend that commenced from the April low at around 47,204 will remain in place. That said, an emphatic decline below 50,000 will start threatening the short-term uptrend and pull the index lower to the next support levels at 49,000 and then to the 47,700-48,000 band. Investors with a long-term perspective can remain invested with a long-term stop-loss at 41,000.

On the other hand, a strong breakthrough of the current resistance can take the index upwards and it can encounter subsequent resistances at 53,000 and then at 54,000 over the medium term.

Nifty Bank (35,047.4)

The Nifty Bank has fallen 244 points or 0.7 per cent in the past week and has formed a bearish engulfing candlestick pattern on the weekly chart. After displaying a minor negative divergence the daily relative strength index has entered the neutral region from the bullish zone and the weekly RSI is likely to enter the neutral region from the bullish zone.

The immediate resistance at 35,650 could limit the upside for the index. On the downside, if the index plunges below the 21-day moving average placed at 34,700, it can pull the index down to 34,400 and then to 34,000 levels. Traders with a short-term view should tread with caution in the coming week.

A strong decline below the crucial support level of 34,000 will start threatening the short-term uptrend that has been in place from this April low. Further decline below 34,000 will bring back selling interest and pull the index down to 33,500 and 33,000 levels. A downward break of the support at 33,000 will intensify the selling pressure and pull the index down to 32,000 or even to 31,000 levels over the medium term.

On the other and, a decisive break-out beyond 35,650 can bring back bullish momentum and take the index northwards to 36,000 and then to 36,500 levels.

Published on June 12, 2021

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