Technical Analysis

Index Outlook | Sensex, Nifty 50 could be under pressure

Yoganand D BL Research Bureau | Updated on January 23, 2021

Celebrations at the Bombay Stock Exchange   -  Mitesh Bhuvad

Amid choppiness, the benchmark indices slipped marginally; approach the week with caution

Witnessing selling interest at higher levels, the Sensex and the Nifty 50 began to decline on the back of profit-booking.

The ensuing truncated week is crucial for the global as well as the domestic markets as investors will focus on the US Federal Reserve meeting, derivatives expiry and Indian Budget expectations. Therefore, traders should approach the week with caution.


Nifty 50 (14,371.9)

Amid volatility, the Nifty 50 climbed higher initially and registered a record high 14,753.55 on Thursday, and then began to decline on the back of selling interest and profit-booking at higher levels. Extending the decline, the index slumped 1.5 per cent on Friday as well; it dropped marginally by 61 points, or 0.4 per cent, for the week.

The week ahead: As mentioned last week, the near-term trend that has been up since the index took support at 13,131 in late December 2020 is now losing momentum. Over the past two weeks, the index has been choppy and range-bound with a negative bias.

An immediate key support for the index is in the band between 14,200 and 14,220. A conclusive fall below this base zone can drag the index lower to the key psychological support level of 14,000.

As long as the index trades above 14,000, there won’t be much threat to the near-term uptrend that is in place. But a clear plunge below this base can drag the index down to the subsequent support levels of 13,770 and then 13,500 levels over the short term.

The daily relative strength index (RSI) is displaying negative divergence and has entered the neutral region from the bullish zone and the weekly RSI is reversing down from the overbought territory. The index appears to have reversed downwards from a short-term perspective, triggered by negative divergence.

An emphatic plunge below the key support level of the 13,480-13,500 band can drag the index down to 13,200, and 13,000 levels thereafter. As long as the index trades above a significant base level of 12,750, the short-term uptrend will remain intact. But a fall below this support will mitigate the uptrend that has been in place since the September 2020 low of 10,790 levels, and pull the index lower. Next supports to note are at 12,400, 12,260 and 12,000 levels.

On the other hand, if the key supports at 13,770 or 13,500 provide base for the index, it can observe a sideways consolidation move above these supports. A conclusive breakthrough of the immediate resistance level of 14,500 can take the index northwards to 14,600 and then to 14,750 in the near term. Next resistances are at 14,800 and 14,900.

Medium-term outlook: Despite volatile movements over the past two weeks, the medium-term trend continues to be up for the index. However, in short term, traders should remain caution ahead of the January month derivatives expiry and the Budget.

Key supports below 14,000 are at 13,500 and 13,000 levels that can cushion the index. But a slump below the vital support level of 13,000 can pull the index down to 12,430 and then to 12,000 over the medium term. Resistances are at 14,500, 14,750 and 15,000.

Sensex (48,878.54)

The Sensex declined marginally by 156 points, or 0.32 per cent, in the past week amid volatility. After briefly moving above the 50,000 mark the index marked a new high at 50,184 on Thursday and started to decline the same day.

The negative divergence on the daily RSI backs the recent fall. A plunge below the key support level of 48,500 can pull the index down to 48,000. An emphatic downward break of 48,000 can pull the index down to the next key support levels of 47,000 and 46,500. The crucial medium-term support to note is placed at 46,000.

Conversely, if the index regains bullish momentum and breaks above the key immediate resistance level of 49,500, it can re-test the psychological resistance of 50,000 once gain over the short-to-medium term. The next barrier is at 50,250. As long as the index trades above the vital base level of 45,000, the short-term uptrend will continue to be in place. Investors with a long-term perspective can remain invested with a stop-loss at 39,800.

Nifty Bank (31,167.25)

Extending the Thursday’s 1 per cent fall, the Bank Nifty plummeted 3.2 per cent on Friday. Moreover, the index slumped 3.35 per cent last week. A key resistance at around 32,500 limited the index’s rally in the past week and it is now on a corrective decline.

A fall below the immediate base level of 31,000 and then below 30,800 can pull the index down to 30,500 and then to 30,000 over the short term. That said, a strong tumble below the significant support level of 29,500 will alter the short-term uptrend and pull the index down to 29,000.

Conversely, if the index rebounds up from the 29,500 it can move sideways in the band between 29,500 and 32,500 for a while. A strong break above the immediate resistance level of 31,500 can take the index higher to 32,000 and then to the upper end of the trading range at 32,500. The next resistances are placed at 32,800 and 33,000 levels. A further rally above 33,000 can take it higher to 33,500 and then to 34,000 over the medium term.

Published on January 23, 2021

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