Technical Analysis

Index Outlook | Sensex, Nifty 50 likely to extend the fall

Yoganand D BL Research Bureau | Updated on January 16, 2021

Sensex and Nifty 50 saw selling interest on Friday and slumped; selling pressure could continue

Amid choppiness, the domestic equity benchmark indices — the Sensex and the Nifty 50 — marginally climbed higher last week. However, this week is again crucial for the indices as they trade in the overbought territory and as near-term correction is likely. Hence, traders should stay cautious.

Nifty 50 (14,433.7)

The Nifty 50 moved higher amid volatility, advancing 86 points, or 0.6 per cent, in the past week. The index recorded a new high at 14,653.3 on Wednesday and started to decline. It trimmed the intra-week gains on Friday by declining 1.1 per cent.

The week ahead: The near-term uptrend that has been up since the index took support at 13,131 is currently losing momentum.

The index has an immediate support at 14,250. A strong plunge below this can pull it down to 14,000.

The near-term uptrend will be under threat if the index slumps below the crucial base level of 14,000 levels.

The next key supports are placed at 13,770 and then 13,500 levels. The daily relative strength index (RSI) is reversing from the overbought territory and the weekly RSI continues to feature in the overbought territory, indicating near-term correction. Therefore, traders or investors with a short-term perspective should continue to tread with caution this week as well.

The next supports after the crucial base zone of 13,480-13,500 are placed at 13,200 and 13,000 levels. The short-term uptrend will remain in place as long as the index trades above a significant base level of 12,750. Nonetheless, a decisive nose-dive below this support will mar the uptrend that has been in place since the September 2020 low of 10,790 levels.

In that situation, the index can trend downwards to test supports at 12,400 and 12,260 levels. A subsequent support to note is placed at 12,000.

Conversely, if the corrective decline finds support at either 13,770 or 13,500, the index can witness a sideways consolidation phase above these supports. Resumption of the uptrend on a strong break above the near-term resistance level of 14,600 can initially push the index northwards to 14,800 levels and then to 14,900 over the short term.

Medium-term outlook: The medium-term trend is still up for the Nifty 50.

Nevertheless, in the short term, caution should be applied as the uptrend has accelerated almost vertically.

We restate that the significant supports on a strong tumble below 14,000 are placed at 13,500 and 13,000 levels. A further decline below the critical base level of 13,000 can drag the index lower to 12,430 and then to 12,000 over the medium term. Resistances are at 14,600, 14,800 and 15,000.

Sensex (49,034.6)

Last week, the Sensex initially moved higher and registered a new high of 49,795 in midst of choppiness on Wednesday, and then started to decline.

The index fell sharply on Friday, declining 1 per cent and forming a a bearish engulfing candlestick pattern.

For the week, it was up by 252 points, or 0.52 per cent.

After testing a resistance at 49,500, the index is now on a corrective decline triggered by negative divergence on the daily RSI. The daily RSI is correcting from the overbought territory while the weekly RSI is at 79.4, which is still in the overbought territory, implying near-term corrective decline is likely. A conclusive breakthrough of the immediate support level of 48,500 can pull the index down to 48,000.

A strong decline below this base can drag the index lower to the subsequent support levels of 47,000 and 46,500. The next support is at 46,000.

On the upside, a clear rally above the immediate resistance level of 49,500 can push the index higher to the psychological barrier of 50,000 in the short-to-medium term.

We restate that the short-term uptrend will continue to be in place as long as the Sensex trades above the key base level of 45,000.

Investors with a long-term horizon can remain invested with a stop-loss at 39,800.


Nifty Bank (32,246.8)

The Nifty Bank index marginally advanced by 162 points, or 0.5 per cent, amid volatility, and paused at the crucial long-term resistance in the band between 32,000 and 32,500. Both the daily and the weekly RSIs are hovering in the overbought territory.

Over the past week, the index moved in the band between 31,700 and 32,600.

break above the upper level of 32,600 can take the index higher to 32,800 and then to 33,000 levels.

This week, traders should tread with caution as the index is range-bound. A strong break above 33,000 can push it northwards to 33,500 and then to 34,000 over the medium term.

Near-term supports are placed at 31,500 and 31,000 levels.

We reaffirm that a conclusive fall below the base level of 31,000 can bring back selling interest and pull the index down to 30,500 and 30,000 levels.

The supports thereafter are at 29,500 and then at 29,000.

Published on January 16, 2021

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