Technical Analysis

Index Outlook | Sensex and Nifty 50 paused at crucial levels

Yoganand D BL Research Bureau | Updated on March 08, 2021

Sensex, Nifty 50 make a strong bounce-back, but test resistances

Last week, the domestic indices — the Sensex and the Nifty 50 — witnessed a bounce-back initially on strong global cues. However, the momentum failed to sustain — by mid-week, the indices experienced selling interest and trimmed some of the earlier gains.

The local indices could remain volatile and look for direction from the global markets. Bullish global cues can bring back liquidity and take the indices northwards and make them register new highs.


Nifty 50 (14,938.10)

Last week, the Nifty 50 index advanced 409 points, or 2.8 per cent, in the midst of choppiness. After a brief rally above 15,000, the index recorded an intra-week high of 15,273 and retreated to test the psychological level of 15,000. The index continues to test this level.

The week ahead: Over the past four weeks, the Nifty 50 has been moving sideways, largely testing the key resistance level of 15,000. Last week, the index was poised, testing the key support at 14,500 and the 50-day moving average.

It took support from this base and bounced up in the past week, surpassing key levels at 14,750 and 15,000. However, after marking an intra-week high of 15,273, the index retreated marginally, to close the week below 15,000.

A strong rally above 15,000 and the 21-day moving average poised at around this level can take the index northwards to 15,200 initially and then to 15,300. A further rally above 15,300 can accelerate the index northwards to 15,500 or even to 15,600 levels in the short term. Inability to move beyond 15,200 can keep the index consolidating sideways in the band between 14,500 and 15,200 for some time. The immediate supports are at 14,750 and 14,500.

A strong plunge below 14,500 can drag the index down to 14,280 initially and then to 14,000. A conclusive fall below the 14,000 mark can pull the index lower to the key base in the 13,500-13,600 band over the short term.

Medium-term outlook: Since the index took support at 7,511 in March 2020, it has been on a long-term uptrend. Both the intermediate- and medium-term trends are up and still in place. The index has been on a medium-term uptrend from the September 2020 low of 10,790. The medium-term uptrend-line is at around 14,500 levels. A fall below this level can drag the index down to 14,280 and then to 14,000 levels.

A further plunge below the significant base level of 14,000 can drag the index down to 13,600, which is approximately the 38 per cent Fibonacci retracement level of the prior uptrend.

An empathic plunge below 13,600 can further drag the index down to the 13,000-13,075 range, which is a key support and the 50 per cent Fibonacci retracement level.

The medium-term uptrend will remain in place as long as the index trades above the support level of 12,750. The uptrend will be under threat on a plunge below this base level and drag the index lower to the subsequent support levels of 12,400, 12,260 and 12,000 over the medium term. Key resistances above 15,300 are at 15,500 and 15,600.

Sensex (50,405.3)

The Sensex took support at around 49,000 last week and bounced up, marginally surpassing the key resistance at 50,000. The index gained 1,305 points, or 2.6 per cent, last week. Since early February, it has been in a sideways movement in the range between 49,000 and 52,000. Currently, the index tests a resistance at 51,000.

A strong rally above this level can pave the way for an upmove to 52,000 in the short term. An emphatic break above this hurdle can push the index northwards to 53,000 and then to 54,000 over the medium term. Having said that, if the index fails to move beyond 52,000, it can be in sideways consolidation phase for some more time.

On the other hand, if the index slumps below 50,000, it can be pulled lower to 49,000. A further decline below this base can drag the index downwards to 48,600 and then to 48,000. The short-term uptrend that commenced from the base of 46,000 in late January will be under threat if the index tumbles below 48,000. Thus could result in the index declining to 47,000 and once again to 46,000 over the short term.

We reaffirm that the medium-term uptrend that began from the September 2020 low of 36,495 will remain intact above 45,000 levels. The subsequent supports are at 44,520 and 44,000. Investors with a long-term perspective can remain invested with a stop-loss at 40,000.

Nifty Bank (35,228.1)

The Nifty Bank index moved higher from 34,800 levels in the past week and advanced 1.2 per cent amid volatility. On the upside, the resistance at around 36,500 has limited the rally.

Over the past one month, the index has been in a sideways movement, mainly in the band between 34,800 and 37,500. As long as the index is range-bound in this band, traders should tread with caution.

An emphatic rally above 36,500 can take the index higher to 37,500 which is the upper boundary of the sideways movement, and then to 38,000 levels in the short term. But a strong fall below the lower boundary at 34,800 can pull the index down to the key base level of 34,000. A decisive break below this support can drag the index to 33,500 and 33,000 over the short term. The short-term uptrend will be under threat if the index declines below 33,000; it can decline to 32,500 and 32,000 thereafter.

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

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Published on March 06, 2021
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