Technical Analysis

Index Outlook | Resistances ahead may limit rallies in Sensex, Nifty 50

Yoganand D BL Research Bureau | Updated on March 27, 2021

Both the Sensex and the Nifty 50 bounced back on Friday, but face a hurdle now

It was a volatile week for the bellwether indices — the Sensex and the Nifty 50 — as they slipped after an initial minor upmove that failed to sustain.

The indices will continue to remain choppy in the truncated week ahead, in which the domestic market is closed on the account of Holi (Monday) and Good Friday (Friday).

Hence, traders should thread with caution.

 

Nifty 50 (14,507.3)

After an initial rally last week, the Nifty 50 recorded an intra-week high at 14,878 on Tuesday and started to decline, witnessing selling interest as well as profit-booking.

But marking an intra-week low at 14,264, the index bounced up on Friday, trimming the weekly loss to 236 points, or 1.6 per cent.

The week ahead: As the index slipped below the key base level of 14,500 and took support at around the next base level of 14,280 last week, the sideways consolidation is developing into a short-term corrective decline.

Since early February this year, the Nifty 50 has been in a corrective downmove. It is slightly trading below the 21- and 50-day moving averages.

Going forward, the index faces these moving averages and a key barrier at 14,815. A strong rally above 14,815 can bring back bullish momentum and take the index higher to 15,000 and then to 15,200 over the short term. Having said that, if it fails to move beyond 14,815, it can decline to test the key support at 14,280 once again. A fall below the base can pull the index lower to 14,000 in the short term. We restate that a further decline below the vital support level of 14,000 can reinforce the bearish momentum and drag the index lower to the subsequent support in the 13,500-13,600 band.

Medium-term outlook: Since the September 2020 low of 10,790, the index has been on an intermediate-term uptrend. It has been on a medium-term uptrend since the December 2020 low of 13,131 levels.

An emphatic plunge below 14,000 will be a threat to the uptrend, and drag the index down to the support zone of 13,500-13,600.

A slump below 13,500 can pull the index lower to the next vital support level of 13,330 and then to 13,000.

The intermediate-term uptrend will remain in place as long as the index trades above the vital base level of 12,750. A conclusive plunge below this base will invalidate the uptrend.

In that case, the index can decline to the subsequent support levels of 12,400, 12,260 and 12,000 over the medium term.

On the other hand, an emphatic break above 15,000 can take the index higher to 15,200 initially. The key resistances thereafter are placed 15,300 are at 15,500 and 15,600.

Sensex (49,008.5)

Last week, the Sensex failed to sustain the initial rally and plummeted sharply. But it bounced back on Friday, gaining 1.2 per cent, to trim the weekly loss at 1.7 per cent. It continues to test a key base level of 49,000. On the upside, the index faces a crucial barrier at the 50,000 mark; the 21- and 50-day moving averages are poised around this level, making it vital.

Such a break-out can underpin the medium-term uptrend and take the index northwards to 51,000 in the short term. A further rally above this levels can pave the way for an upmove to 51,400 and then to 52,000.

A conclusive breakthrough of 52,000 is needed to strengthen the uptrend and take the index higher to 53,000 and then to 54,000 over the medium term.

Conversely, the current support at 49,000 can offer cushion in the coming week. However, a decisive fall below this base can drag the index lower to 48,600 once again and then to 48,000. A conclusive decline below 48,000 will mitigate the medium-term uptrend and drag the index down to 47,000 and then to 46,000 over the medium term.

We reiterate that as long as the index trades above the medium-term support level of 45,000, the uptrend that started from the September 2020 low of 36,495 will remain intact.

The next vital supports are placed at 44,520 and 44,000. Investors with a long-term viewpoint can stay invested with a stop-loss at 40,000.

Nifty Bank (33,318.2)

The Nifty Bank extended the decline and fell 843 points, or 2.5 per cent, in the past week. It has slipped below the key base level of 34,000, which could act as a crucial resistance now.

An upmove beyond this level can take the index higher to 34,800 where the 21-day moving average is poised.

An emphatic break-out of the resistance in the 34,800-35,000 band is required to take the index higher to 36,000 in the short term.

The next resistances are placed at 36,500 and 37,000 levels.

Nevertheless, a slump below the immediate base level of 33,000 can pull the index down to 32,000 in the coming week. A further decline below 32,000 can strengthen the downmove and pull the index lower to 31,000 and then to 30,000 levels.

Traders should continue to remain cautious this week.

As long as the index trades above 29,000 levels, the intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will remain in place. The supports below 29,000 are at 28,500 and 28,000.

Published on March 27, 2021

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