Technical Analysis

Index Outlook | Sensex, Nifty 50 can be range-bound

Yoganand D | Updated on May 24, 2020 Published on May 23, 2020

Sensex and Nifty 50 have paused at crucial resistances; investors should remain watchful

Following a plunge last Monday, the domestic benchmark indices — the Sensex and the Nifty 50 — turned choppy and moved sideways.

Both the indices are range-bound, trading at crucial levels.

The movement in the ensuing derivative expiry week is vital for the bellwether indices that could provide short-term direction for them.

Other factors to note are movement of the rupee and the IMD’s monsoon forecast.

On the global front, the US-China tensions could weigh on global markets in the coming week.

 

Nifty 50 (9,039.2)

Last week, the Nifty 50 extended the down-move by declining 97 points, or 1 per cent, amid volatility.

The week ahead: The index has been in a near-term downtrend over the past three weeks. The key support at 8,800 had cushioned the index last week. It currently tests both the 21-day simple moving average (DMA) and the 50-DMA.

The indicators on the daily chart are displaying mixed cues.

The index faces an immediate resistance at 9,200. A clear break above this barrier can pave the way for an up-move to 9,400.

A further rally above the next crucial resistance at 9,530 will alter the short-term downtrend and take the index higher to 9,600 and then to 9,800 in the ensuing weeks.

On the other hand, a decisive fall below the immediate support level of 8,800 will reinforce the bearish momentum and drag the index down to 8,400 which is the next crucial base level to watch out.

If the crucial base level of 8,400 fails to hold, the index can slump to 8,200 and re-test 8,000 levels in the short term.

Medium term: As long as the index trades below the key resistance in the 10,000-10,150 zone, the medium-term trend will remain down.

A strong breakthrough of this zone will alter the downtrend and push the index higher to 10,335 and 10,500 over the medium term. The resistances thereafter are at 10,750; 10,830 and 11,000. On the other hand, an emphatic slump below 8,400 can pull the index down to 8,000 and 7,500.

A consolidation movement in the wide band between 7,500 and 10,500 is more likely over the coming months.

Sensex (30,672.5)

The Sensex declined 425 points, or 1.37 per cent, continuing the down-move. It now tests the 21- as well as the 50-day moving averages. In the past week, the index took support at around 30,000, recording an intra-week low at 29,968 levels, and bounded up.

However, it faces a key near-term hurdle ahead at 31,500.

A breach of this level can take it higher to the key resistance at 32,000. We reaffirm that a decisive break above this resistance will reinforce the bullish momentum, and can lead to a corrective rally higher to 32,500 and then to 32,750 in the short-to-medium term.

The next resistances to note are at 33,000 and 33,355.

A strong rally above these resistances can accelerate the index higher to 34,000 in the medium term. Conversely, if the Sensex tumbles below the crucial base level of 30,000, it will bring back selling interest and pull the index down to 29,500.

The short-term uptrend that commenced from the March low of 25,638 will be intact as long as the index trades above 29,500. The next supports are at 29,000 and 28,500.

Investors with a long-term horizon can stay invested with a stop-loss at 27,500.

Nifty Bank (17,278.9)

In the past week, the Nifty Bank nosedived 1,555 points, or 8.26 per cent, under-performing the bellwether indices.

With this fall, the index appears to have completely retraced the previous corrective rally. The index trades above a key base level of 17,000.

A plunge below this base can pull it down to 16,500 and then to 16,000 in the ensuing week.

An upward reversal from the current base level can take the index higher to 18,000 initially.

A strong break above this hurdle can lead to a fresh corrective rally and push the index 18,500 and then to 19,000 in the short term.

The next resistances are at 19,380 and 20,000. The index is pausing at a crucial support level and awaits direction.

Hence, traders with a short-term perspective should desist taking fresh positions as long as the index tests the vital support at 17,000.

Global cues

The Dow Jones Industrial Average advanced 779 points, or 3.3 per cent, to close at 24,465 in the midst of choppiness in the previous week. It now tests a resistance at 24,500.

A strong break above this level can push the index northwards to 25,000. A further rally beyond 25,000 can extend the rally to 25,500 and then to 26,000 over the short-to-medium term.

But a downward reversal from the current resistance can pull the index down to 24,000.

A tumble below this level can pull the index down to 23,500 and 23,000levels.

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Published on May 23, 2020
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