Technical Analysis

Index Outlook | Sensex, Nifty 50 pause above key supports

Yoganand D | Updated on June 07, 2020

Sensex and Nifty 50 witness yet another rally, but investors should stay cautious

The domestic equity benchmark indices — the Sensex and the Nifty 50 — extended the rally last week, in line with the global markets. There was a buying-spree in the small- and mid-cap segments as well.

Rupee movement and crude oil price action will be keenly watched in the coming week.

On the global front, the US markets witnessed a sharp rally on Friday, after the jobs report surprised on the positive side. In the coming week, US-China trade tensions will continue to be on focus. The upcoming US Federal Reserve meeting will also be closely followed.

Nifty 50 (10,142.1)

Last week, the Nifty 50 index extended the up-move by gaining 561 points, or 5.8 per cent. This rally has strengthened the uptrend and the index managed to close above the vital psychological resistance level of 10,000.

The week ahead: In mid-May, the index found support at around 8,800 and resumed the uptrend that began from the March low of 7,511 levels. While trending up, it initially surpassed key resistances at 9,400, 9,800 and then the 10,000-mark in the past week.

Moreover, the index hovers way above the 21- and 50-day moving averages. It has been in a short-term uptrend since taking support at 8,800 levels, buttressed by good volume.

Backing the uptrend, the daily relative strength index (RSI) features in the bullish zone and the weekly RSI charts upwards in the neutral region. Moreover, the daily as well as the weekly price rate of change indicators feature in the positive terrain, implying buying interest.

The index currently hovers above a key psychological level of 10,000. Any correction can take support at this level or at 9,800. A strong support below 9,800 is at 9,600.

Failure to sustain above 9,600 will alter the short-term uptrend and pull the index down to 9,400 and 9,000 levels. As long as the index trades above 8,800 levels, the medium-term uptrend will remain intact. Continuing the uptrend, the index can head north to 10,335 and then to 10,500 levels.

On the other hand, if the index slumps below 8,800, it can bring back selling interest and drag the index down to 8,400 and 8,200 levels.

The medium-term trend is up for the index. But it currently tests the crucial resistance in the 10,000-10,150 band. An emphatic break above this level can take the Nifty 50 northwards to 10,500 over the medium term. A further breach of this barrier can take the index higher to 10,750, 10,830 and 11,000 levels.

Conversely, if the index tumbles below 8,800 the medium-term uptrend will be under threat and pull it down to 8,400 or 8,000 levels.

Sensex (34,287.2)

The Sensex advanced 1,863 points, or 5.75 per cent, decisively surpassing the crucial resistances at 33,000 and 33,355 in the previous week. It managed to close the week above the significant resistance level of 34,000.

The immediate resistances are at 34,470 and 34,770.

A conclusive breach of these barriers will reinforce the medium-term uptrend and take the Sensex northwards to 35,000 and then to 36,000 over the medium term. That said, a downward reversal from the current level can pull the index down to 34,000 and then to 33,355 levels. The next supports are placed at 33,000 and 32,500 levels.

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

An emphatic fall below this base will alter the trend and pull the index lower to 31,000 and then to 30,000 in the coming weeks. The medium-term uptrend that has been in place from the March low of 25,638 will stay intact as the index trades above 30,000-mark.

But, a slump below this level will mar the uptrend, and the subsequent supports at 29,500 and 29,000 will come into play.

Investors with a long-term view can remain invested with a modified stop-loss at 29,500.


Nifty Bank (21,034.5)

The Nifty Bank continued to trend upwards last week and zoomed 1,737 points, or 9 per cent, surpassing a key resistance at 20,500. Nevertheless, the index now tests a key medium-term resistance in the band between 21,000 and 21,500.

A strong break above this barrier will strengthen the bullish momentum and pave the way for an up-move to 22,000 and then to 23,000 over the medium term with a minor pause at around 22,500 levels. Inability to move beyond 21,500 can drag the index down to 20,500 initially.

A further decline below this base can pull the index down to 20,000. The short-term uptrend that commenced from the May low of 17,105 will remain in place as long as the index trades above 19,000 levels. But a decisive slump below this base will drag the index down to 18,500 and then to 18,000 levels.

Traders with a short-term perspective should tread with caution in the coming week if it continues to test the current resistance band. One can consider initiating fresh long positions on a strong break above 21,500 with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average skyrocketed 1,727 points, or 6.8 per cent, to finish the past week on a strong footing at 27,110.9 levels. Nevertheless, the index tests a key hurdle at 27,000. A strong rally above this level can pave the way for an up-move to 27,500 and then to 28,000 over the medium term.

But a decline below the immediate support level of 26,500 can pull the index lower to 26,000 and thereafter to 25,500 over the medium term. The next key support is at 25,000.

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Published on June 06, 2020
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