Technical Analysis

Index Outlook | Sensex, Nifty 50 could take a breather

Yoganand D | Updated on June 28, 2020 Published on June 27, 2020

The Sensex and the Nifty 50 extend their rally; traders should remain watchful

The domestic equity indices — the Sensex and the Nifty 50 — continued to trend upwards in the midst of choppiness last week despite weak global cues.

In the coming week, the focus will be on global markets, as the US indices had plunged sharply on Friday, which could have an impact on the Asian and other markets towards the beginning of the coming week. Hence, trades should tread with caution.

On the global front, the increasing number of coronavirus cases and continued US-China trade tensions will be in the limelight.

Nifty 50 (10,383)

 

After an initial rally, the Nifty 50 index recorded an intra-week high at 10,553 and witnessed minor correction. Amid volatility, the index advanced 138 points, or 1.35 per cent, in the past week.

A key support at 10,200 provided base recently. The short-term trend is up.

The week ahead: The index gradually extended the rally despite choppiness in the week ago.

It continues to hover well above the 21- and 50-day moving averages.

The index trended upwards and reached the subsequent key resistances at 10,335 and 10,500.

However, it now faces an immediate resistance at 10,600 and a vital one at 10,750.

The daily relative strength index (RSI) features in the bullish zone and the weekly RSI is charting higher in the neutral region.

Besides, the daily as well as the weekly price rate of change indicators are hovering in the positive terrain, signifying buying interest.

The index has an immediate support at 10,200 and the next at 10,000. A decisive slump below these two supports can cause a corrective decline to 9,800.

A further decline below this base can drag the index down to 9,600 and then to 9,400 levels in the short term.

In that case, the short-term uptrend will be under threat and the index can even decline to 9,000 levels. The medium-term uptrend will remain in place as long as the index trades above 8,800 levels. But a decisive fall below 8,800 can bring back selling pressure and pull the index lower to 8,400 and 8,200 levels.

Medium term: Last week, the index sustained above the key base level of 10,200 and moved higher. The medium-term trend remains to be up. The index now faces vital resistance ahead at 10,600. An emphatic break above this barrier can pave the way for an up-move to 10,750 and then to 10,830 levels.

The next crucial resistance is pegged at 11,000. On the other hand, a strong fall below the significant support level of 8,800 is required to mitigate the uptrend and drag the index lower to 8,400 or 8,000 levels.

Sensex (35,171.2)

Last week, the Sensex advanced 439 points, or 1.3 per cent. But the index continues to test resistance at 35,500. A clear break above this level can push the index northwards to the key medium-term resistance at 36,000 in the ensuing weeks.

However, a slump below the immediate base level of 34,500 can bring selling interest, and a minor corrective decline is possible. In that case, the index can decline to 34,000, which a key medium-term base.

Any further decline below this support can see the index trending down to 33,000 and then to 32,500 levels.

A strong plunge below the 33,000 mark will diminish the bullish momentum and pull the index downwards to 32,500 and then to 32,000. The short-term uptrend will stay in place as long as the index trades above 32,000.

Having said that, a tumble below this base can pull the index lower to 31,000 and then to 30,000 over the short term.

As long as the index trades above 30,000, the medium-term trend will be up.

The next supports are at 29,500 and 29,000. Investors with a long-term perspective can stay invested with a stop-loss at 29,500.

Nifty Bank (21,592)

In the previous week, the Nifty Bank was volatile and managed to climb 253 points, or 1.2 per cent. It has formed a spinning top candlestick pattern in the weekly chart, indicating indecisiveness.

Also, it tests a key hurdle between 21,500 and 22,000, which is the upper boundary of the sideways consolidation phase that has been in place since late March this year. A conclusive break above this zone can push the index northwards to 22,500 and then to 23,000 levels over the medium term. As the index is pausing at a crucial resistance zone, traders with a short-term horizon should remain cautious and consider taking fresh long positions on a rally above 22,000.

Nevertheless, failure to move beyond the 22,000 level can pull the index down to 21,000 initially.

A further decline below this base can pull the index lower to 20,500 and then to 20,000.

A sturdy decline below 19,500 can drag the index lower to 18,000 and then to 17,000 over the medium term.

Global cues

The Dow Jones Industrial Average nose-dived 855 points, or 3.3 per cent, in the past week, breaking below the key base level of 25,500 to close at 25,015. The index now tests a support at 25,000. A strong fall below this level can pull the index lower to 24,500 and then to 24,000 over the short term.

Conversely, if it rebounds from the current base level, a corrective rally to 25,500 is possible initially. A further rally above this level can test a resistance at 26,000 and then at 26,500 in the short term.

Published on June 27, 2020
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