Technical Analysis

Index Outlook | Sensex, Nifty 50 continue to edge higher

Yoganand D | Updated on April 18, 2020

Although optimism prevails, there is no reason for investors to lower their guard

The US markets set the tone for domestic markets as well as other global markets last week and the ongoing rally continued across the globe. Both the Sensex and the Nifty progressed higher after an initial struggle.

The Q4 earnings, the rupee’s movement against the greenback and crude oil price action are key events to watch in this week. On the global front, the hope for a coronavirus treatment and sanguine updates on Covid-19 could keep the bullish momentum intact. That said, investors should continue to tread with caution.

Nifty 50 (9,266.7)

The Nifty 50 index extended the rally by gaining 154 points, or 1.7 per cent, in the past week amid volatility initially. It decisively breached a key psychological resistance at 9,000 on Friday, by advancing 3 per cent. The near-term view continues to be positive.

The week ahead: Testing a key resistance at 9,000 for about five trading sessions, the index eventually surpassed this level on Friday. Going ahead, the 9,000 level will act as a crucial support. That said, the index now tests the next key resistance at 9,280. An emphatic breakout of this level can push the index northwards to a short-term, trend-deciding level in the 9,500-9,600 zone.

A further breakout of this crucial resistance band will change the short-term downtrend and take the index higher to 10,000 over the short term.

The daily relative strength index (RSI) features in the neutral region, while the weekly RSI continues to recover from the oversold territory. Besides, the daily price rate of change indicator hovers in the positive terrain, indicating buying interest.

On the other hand, an empathic plunge below the near-term support level of 9,000 can drag the index lower, and it can find supports at 8,800 and 8,600 levels. A further decline below 8,600 will bring back selling interest and drag the index lower to 8,400 and thereafter to a crucial support level of 8,000 over the short term. A downward breakthrough of the psychological base level of 8,000 can strengthen the downtrend and pull the index down to 7,800 and then to 7,500.

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

We reiterate that a decisive breakthrough of this band is needed to alter the downtrend and take the index northwards to 10,335 and 10,500 in the medium term. The next resistances are placed at 10,750 and 11,000.

Conversely, if the index conclusively tumbles below the vital support level of 8,400, it will reinforce the bearish momentum and drag the index lower to 8,000. The subsequent base is at 7,500.

Sensex (31,588.7)

Last week, the Sensex advanced 429 points, or 1.4 per cent. It surpassed a crucial resistance level of 31,000. Going forward, the index faces an immediate barrier at 32,000. The short-term trend has been up since recording a low at 25,638 in late March.

We reaffirm that the ongoing uptrend will remain intact as long as the index hovers above 28,500. But a tumble below this base level can bring back selling pressure and drag it lower to 27,500 and then to 27,000.

The next supports are at 26,500 and 26,000. If the Sensex manages to emphatically break above 32,000, it will pave the way for an up-move to a short-term, trend-deciding level of 33,000.

Investors with a long-term perspective can buy in declines with a stop-loss at 26,000.

Nifty Bank (20,681.4)

The Nifty Bank index jumped 6.6 per cent on Friday, recovering the initial loss, and managed to end the week on a positive note by gaining 767 points. or 3.8 per cent. Interestingly, the index decisively breached a crucial resistance level of 20,000 on Friday.

This breakthrough strengthens the short-term uptrend that has been in place since the March low of 16,116.

Having said that, the Nifty Bank index faces the next hindrance at 21,000; an emphatic break above this level will strengthen the uptrend and take it higher to 22,000 in the near term. Failure to move above the current resistance level of 21,000 can witness a sideways movement in the wide band between 18,000 and 21,000 for a while.

The daily RSI hovers in the neutral region and the weekly RSI is recovering from the oversold territory. The daily price rate of change indicator has entered the positive terrain, implying buying interest. On the downside, a slump below the immediate support level of 19,000 can pull the index down to 18,000 initially and then to 17,000 over the short term.

Traders with a short-term perspective should approach with a cautious stance as the index faces a resistance at 21,000 and can initiate fresh long positions above 21,000 levels with a fixed stop-loss. The key resistances above 22,000 are pegged at 23,000 and 24,000 levels.




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Published on April 18, 2020
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