Technical Analysis

Index Outlook: Rally in Sensex, Nifty to continue

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

But investors with low risk appetite should tread with caution

The benchmark indices, the Sensex and the Nifty 50, continued to trend upwards in the midst of volatility in the derivatives expiry week. Going forward, the global markets can provide cues for the domestic indices. August auto sales numbers, crude oil price movement and rupee action need to be watched in the ensuing week.

Nifty 50 (16,705.2)

After a minor pause, the Nifty 50 continued its upward journey in the past week by advancing 254 points or 1.5 per cent. The index took support at around 16,400 and resumed the up-move; it had registered a new high at 16,722 levels on Friday.

The week ahead: Since the index took support at around 15,500 in late July this year, it has been in a short-term uptrend, which will stay intact as long as the index trades above the vital base level of 16,160. Key support thereafter is placed in the band between 15,900 and 16,000. A decline below the vital support level of 16,160 can weaken the short-term uptrend and pull the index down to 16,000 or 15,900 levels over the short term.

Nevertheless, the index has immediate supports at 16,400 and 16,240, which can provide base in case of a corrective decline. The index continues to hover well above the 21- and 50-day moving averages. Further, the daily as well as the weekly relative strength index are featuring in the bullish zone, backing the uptrend. Also, the daily and weekly price rate of change indicators feature in the positive terrain, indicating buying interest. As the index is poised at the resistance level of 16,700, an emphatic rally above this level can reinforce bullish momentum and take the index higher to 16,800 and then to 17,000 over the short term.

 

We reiterate that a decisive decline below the crucial support in the band between 15,900 and 16,000 can undermine the short-term uptrend and take the index lower to the subsequent support in the 15,500-15,600 zone. Key supports below 15,500 are placed at 15,300 and 15,000 levels.

Medium-term outlook: With the index continuing to trend northwards, the medium-term uptrend that started from the April low at 14,151 continues to be intact. As long as the index trades above the significant medium-term support at 15,000, the uptrend will remain in place. Only a conclusive slump below the crucial base level of 15,000 will be a threat to the uptrend and drag the index down to 14,800 and then to the next base levels at 14,500 and 14,200. Subsequent supports are at 14,000 and in the 13,500-13,600 band.

We restate that if the index witnesses a corrective decline below 16,000 levels, the decline can extend and test next key medium-term supports at 15,500 and 15,000. An emphatic breakthrough of the current barrier at 16,700 can take the index northwards to 17,000 over the medium term.

Sensex (56,124.72)

Last week, the Sensex resumed the uptrend and surged 1.44 per cent after it took support at around 55,000 recently. However, the index now tests resistance at 56,120. A decisive breach of this hurdle is needed to strengthen the on-going short-term uptrend in place from the July low of 51,802 levels. Immediate support pegged at 55,000 can cushion the index in case of a corrective decline from the current resistance. But a strong up-move beyond 56,120 can pave the way for a rally to 56,500 initially and then to 57,000 levels over the short to medium term.

On the other hand, the near-term support placed at 55,000 can provide base for the index. The near-term bullish momentum will remain intact as long as the index trades above 55,000. But a plunge below this base will start weakening the uptrend and drag the index down to next key support levels of 54,500 and 54,000 over the short term. We restate that an emphatic downward breakthrough of the crucial support level of 54,000 can prolong the corrective decline and test next support at 53,500 levels. Supports thereafter are at 53,000 and 52,770.

Since the April low at around 47,204, the index has been in a medium-term uptrend and this will stay in place as long as the index trades above the psychological level of 50,000. Next medium-term supports below 50,000 are at 49,500 and 48,700. Investors with a long-term view can stay invested with a revised stop-loss at 47,000.

Nifty Bank (35,627.8)

Amid volatility, the Bank Nifty had gained 593 points or 1.7 per cent in the past week. Over the past one month, the index has been range-bound in the wide band between 34,800 and 36,300. The index now faces a key short-term barrier ahead at the 36,000-36,200 band. A decisive breakthrough of this resistance band can reinforce the bullish momentum and push the index higher to 36,500 and then to 37,000 over the short term. Resistances subsequently are placed at 37,200 and 37,700 levels.

On the other hand, the index has a near-term support at 35,300 where 50-day moving is poised. A decisive fall below this level can pull the index down to 35,000 and then to 34,800 levels over the short term. However, an emphatic decline below the lower boundary at 34,800 can drag the index lower to 34,500. If the index extends the down-move and breaches the next base level of 34,500, then it will test the crucial support at 34,000 levels over the medium term. A decisive decline below 34,000 is needed to undermine the medium-term uptrend that had commenced from the April low of 30,405 levels. Supports thereafter are placed at 33,000 and 32,000.

Published on August 28, 2021

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