Technical Analysis

Index Outlook | Sensex, Nifty 50 face key barriers

Yoganand D | Updated on July 04, 2020 Published on July 04, 2020

Sensex and Nifty 50 extended their rally last week, face medium-term resistance levels

Last week, the Sensex and the Nifty 50 extended their rally, witnessing buying interest in select sectors and large-cap stocks.

The bullish momentum can remain intact and take the benchmark indices higher. However, traders should remain cautious in the ensuing week. Rupee weakening, rising gold price and crude oil price will be in focus.

Nifty 50 (10,607.3)

The Nifty 50 index surpassed a key resistance at 10,500, following an initial pause, in the past week. It jumped 224 points, or 2.2 per cent, amid market volatility. The short-term trend continues to be up.

The week ahead: In late June, the index had encountered a key resistance at 10,500 and witnessed a minor correction for about a week.

Thereafter, the index resumed the short- as well as the medium-term uptrend. It continues to trade well above the 21- and 50-day moving averages. After the recent breach of the key resistance at 10,500, the index now tests resistance at 10,600. A conclusive break of this hurdle can take the index northwards to 10,750 in the ensuing weeks.

The daily relative strength index (RSI) hovers in the bullish zone and the weekly RSI is trending upwards in the neutral region towards the bullish zone.

Though the daily price rate of change indicator is hovering in the positive terrain, it is charting downwards, showing an initial sign of weakness.

The weekly price rate of change indicator also features in the positive terrain.

Any weakness in the current uptrend can experience a corrective decline that can find support at 10,500 initially. A slump below this base can drag the index down to 10,200 and then to 10,000 in the near future. We reiterate that a decisive plunge below the second support can drag the index down to 9,800.

A further break below can extend the correction and pull the index lower to 9,600 and then to 9,400 levels over the short term. In such a scenario, the short-term uptrend could be under threat and the decline can extend to the vital base level of 9,000 levels. We restate that the medium-term uptrend will stay in place as long as the index hovers above 8,800 levels.

However, a strong plunge below 8,800 can bring back selling pressure and drag the index down to 8,400 and 8,200 levels.

Medium term: The index has managed to stay above the crucial support level of 10,200 for another week and extended the uptrend. Since late March, the index has been on a medium-term uptrend. The index currently tests a vital resistance at 10,600.

A decisive break above this hurdle can pave the way for an up-move to 10,750 and then to 10,830 levels.

The 200-day moving average is poised at 10,880 levels.

A strong break above these barriers will pave the way for the index to test the crucial long-term resistance at 11,000.

Conversely, a strong fall below the key medium-term support level of 8,800 is needed to alter the uptrend and pull the index down to 8,400 or 8,000 levels.

Sensex (36,021.4)

The Sensex climbed 850 points, or 2.4 per cent, surpassing a key resistance at 35,500 last week.

This rally has strengthened the medium-term uptrend. That said, the index now tests a key resistance at 36,000 and faces a key long-term resistance ahead at 36,500 in the coming week.

An emphatic break above these resistances can push the index higher to 37,000 and then to 37,500 over the medium term.

Inability to surpass the current hurdle can witness a correction. In that case, the index can retreat to the immediate support level of 35,500.

The successive supports are at 34,500 and 34,000.

Only a strong fall below 34,500 can bring back selling pressure and pull the index to the next base level. Any further decline below the key medium-term base level of 34,000 can drag the index downwards to 33,000 and then to 32,500 levels.

The short-term uptrend will remain in place as long as the index trades above 32,000.

The medium-uptrend that has been up since late March this year will stay intact as long as the index trades above 30,000.

Subsequent supports to note are placed at 29,500 and 29,000.

Investors with a long-term perspective can stay invested with a revised stop-loss at 29,900.

Nifty Bank (21,852.4)

The Nifty Bank was choppy in the past week and advanced 260 points, or 1.2 per cent. The index continues to test the crucial resistance in the band between 21,500 and 22,000 that is also the upper boundary of the sideways consolidation phase of the index. It has been in sideways movement since late March this year. A decisive breakthrough of this resistance zone can take the index higher to 22,500 and then to 23,000 levels over the medium term.

We reaffirm that traders with a short-term perspective should remain cautious as long as the index tests the current resistance, and consider initiating fresh long positions only on a strong rally above 22,000 with a fixed stop-loss. Having said that, inability to break above the vital level of 22,000 levels can drag the index lower to 21,000.

A further fall below this support can pull the index lower to 20,500 and to 20,000.

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




Global cues

In the truncated week, the Dow Jones Industrial Average gained 811 points, or 3.2 per cent, to close at 25,827 levels. The index took support at 25,000 and bounced back, but it now tests resistance at 26,000.

A strong break above this level can push the index higher to 26,500 and then to 27,000. On the other hand, a fall below 25,500 can pull the index lower to test 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.

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Published on July 04, 2020
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