Technical Analysis

Index outlook: Poised at a critical hurdle

Yoganand D | Updated on January 20, 2018 Published on March 26, 2016



The indices need to rally strongly next week to send a positive medium-term signal

Domestic stocks started the week on a strong note on hopes of a large rate cut by the RBI in its policy meeting on April 5.

But, the indices turned volatile thereafter with investors booking profits ahead of the long weekend. With the continued overseas funds flow, the benchmarks extended their consecutive fourth weekly climb.

The coming week can see the trading get a little choppy ahead of the derivative expiry. However, a sharp decline is unlikely as the financial year comes to an end this week. Most fund managers would prefer to keep stock prices high to prop up their performance.

Nifty 50 (7,716.5)

The index advanced 112 points or 1.5 per cent in the prior week. This move has decisively breached the key resistance at 7,600. It however faces the next key hurdle at 7,730.

The week ahead: The area around 7,700 is an important hurdle as 38.2 per cent Fibonacci retracement level of prior downtrend. Therefore, the zone between 7,700 and 7,730 is a crucial trend-deciding zone. With the derivative expiry for March scheduled this Thursday, the index could remain choppy. The indicators in the daily chart are approaching the overbought territory and showing signs of weakness. An emphatic break through of the resistance zone is needed to strengthen the uptrend and take the index higher to 7,800 and then to 7,955 in the coming weeks.

Key supports are pegged at 7,600 and 7,500. Traders can hold their long positions and initiate fresh long position as long as the index trades above 7,600. A slump below 7,600 can drag the Nifty lower to 7,500 or even to 7,400. But, only a conclusive fall below 7,400 will be a cause to worry. Next supports at 7,300 and 7,250 will come to the rescue.

Medium-term trend: As long as the index stays above the key support level of 7,400, the bullish momentum can remain in place. Strong break above 7,775 can take the index higher to 8,000 and 8,270 in the medium term. Key supports are at 7,250 and 6,970.

Sensex (25,337.5)

Last week, the Sensex added 384.8 points or 1.54 per cent, breaching the immediate resistance at 25,000. The index trades well above its 21 and 50-day moving averages. However, it faces a key resistance ahead at 25,500. The daily price rate of change indicator is charting lower peaks, shows signs of weakness. Plus, the daily relative strength index is nearing the overbought territory at the 70-mark.

The week ahead: The index managed to breach the key resistance at 25,000; this is a positive sign. Nevertheless, it faces a key resistance at 25,500. Traders with a short-term perspective can buy on a strong move above 25,500. Targets on an emphatic breakthrough of 25,500 are 26,300 and 27,200. Inability to move past 25,500 can keep the index moving in a broad sideway range be 22,500 and 25,500.

A plunge below 25,000 can drag the index down to 24,500. Next supports are placed at 24,000 and 23,000. On the downside, if the Sensex manages to stay above 24,000, it will be a positive sign from a medium-term perspective.

Bank Nifty (15,887.7)

The Bank Nifty rose 232 points or 1.5 per cent in line with the Nifty in the previous week. It has been on a short-term uptrend since recording a 52-week low at 13,407 in late February. The index trades well above its 21 and 50-day moving averages. But the index now faces a key resistance at 16,000. With the derivatives expiry ahead, we reiterate that the traders with a short-term horizon can consider exiting at this resistance level. Subsequent resistance is placed at 16,250. A downward reversal from either of these resistances can drag the index down to 15,500 in the near term. Further fall below 15,500 can pull the Bank Nifty down to 15,000 and 14,765 levels. This decline could be a corrective one and can find support at 15,000 or 14,765.

Only a conclusive slump below 14,765 will mar the short-term uptrend and drag the index down to 14,500 and then to 14,000. On the other hand, resistance above 16,250 are at 16,500 and 16,800

Global cues

Global indices gave up some gains last week on fears that the Federal Reserve’s rate hikes may destabilise markets. The CBOE volatility index that had been consistently dredging lower, halted around 14 and whipsawed over the week, denoting nervousness.

The Dow Jones Industrial Average halted at higher levels, around 17,500 and oscillated there over the week. The absence of a sharp sell-off is however a positive and denotes strength. The index has the potential to move towards its previous peak of 18,000 and then 18,351, if the index manages to hold above the level of 16,800.

Most Asian benchmarks are currently in strong medium-term uptrends. The slight pull-back last week has not affected this trend and these indices can move higher. The Indian benchmark is a relative under-performer compared to its Asian peers.

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Published on March 26, 2016
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