Technical Analysis

Index Outlook | Sensex, Nifty 50 regain bullish momentum

Yoganand D | Updated on July 18, 2020

Following an initial weakness, the bellwether indices made a strong surge on Friday

With the recent rally, the key indices appear to have re-gained bullish momentum. But they face significant resistances ahead.

Hence, investors and traders should continue to tread with caution.

The first-quarter earnings announcement and the progress of the monsoon will be in focus, aside from rupee movement and action across global markets.

Nifty 50 (10,901.7)

The Nifty 50 index continued to trend upwards after an initial weakness and volatility. It managed to close above the key resistance at 10,830.

The index surged 133 points, or 1.2 per cent, last week.

The short-term trend continues to be up.

The week ahead: After testing the key resistance level of 10,830 for more than a week, the index moved above the barrier on Friday.

It currently tests the 200-day moving average and faces a significant medium-term resistance ahead at 11,000.

The daily relative strength index (RSI) has re-entered the bullish zone from the neutral region, negating the minor negative divergence. The weekly RSI is on the brink of entering the bullish zone from the neutral region. Besides, the daily as well as the weekly price rate of change indicators are hovering in the positive territory, implying buying interest.

While trending up, the index managed to surpass key short-term resistances at 10,500 and 10,830. A strong breakout of the immediate hurdle at 11,000 can push the index higher to 11,200 and then to 11,433. That said, inability to advance above this barrier can keep the index consolidating sideways between 10,500 and 11,000 for a while.

Conversely, any corrective decline can find support in the near term at 10,600. The subsequent support is at 10,500. A conclusive fall below this base can pull the index down to 10,200 and then to 10,000 in the short term. As long as the index trades above the crucial support level of 9,800, the short-term uptrend will remain intact. The next supports to note are at 9,600 and 9,400 levels.

Medium term: The index continues to be on a medium-term uptrend since the March low of 7,511. But, the it now faces a significant medium-term resistance at 11,000. We reiterate that a decisive break above this resistance is needed to strengthen the uptrend and take the index northwards to 11,400 and then to 11,600 levels over the medium term.

On the other hand, a strong decline below the key support level of 8,800 could alter the medium-term uptrend and drag the index lower to 8,400 or 8,000 levels.

The immediate medium-term supports are at 10,500 and 10,200 levels.




Sensex (37,020.1)

Amid volatility, the Sensex managed to extend the uptrend by gaining 425 points, or 1.16 per cent, last week. The index managed to break a a key long-term resistance at 36,500. But it now tests resistance at 37,000.

A further rally above this level can pave the way for an upmove to 37,500 in the medium term.

The subsequent resistances are pegged at 38,000 and 38,500.

Conversely, if the Sensex struggles to move beyond 37,000 and falls below the near-term base level of 36,500, it can decline to 36,000 levels. The subsequent supports are at 35,500 and 35,000. We reaffirm that only a strong fall below 34,500 can increase selling pressure and drag the index down to 34,000. A fall below the medium-term support level of 34,000 can drag the index to 33,000 and then to 32,500 levels over the short to medium term. As long as the index trades above 32,000, the short-term uptrend will remain intact.

The medium-term trend that has been up since the March low will stay in place until the index hovers above 30,000. The next supports are at 29,500 and 29,000.

We restate that investors with a long-term horizon can stay invested with a stop-loss at 29,900.

Nifty Bank (21,966.8)

In the past week, the Nifty Bank tumbled 431 points, or 1.9 per cent, underperforming the key benchmark indices. Recently the index had encountered a key resistance at 23,000 and continued to trend down. However, it took support at around 21,000 and bounced up slightly.

Ahead, the index faces resistances at 22,500 and 23,000 levels.

An emphatic breakthrough of these resistances is needed to reinforce the bullish momentum and take the index northwards to 23,500 and then to 24,000 over the medium term. Having said that, if the index fails to move beyond the aforementioned resistances, it could keep moving in a sideways band between 21,000 and 23,000 for some time.

On the downside, the key immediate support at 21,000 can provide base for the index. But a strong tumble below this base can pull the index lower to 20,500 and 20,000 levels. A further fall below 20,000 can drag it down to 19,500.

The subsequent supports are placed at 18,000 and 17,000 levels.

Traders with a short-term perspective can consider taking fresh long positions on a strong rally above 22,500 levels with a fixed stop-loss.

Global cues

Last week, the Dow Jones Industrial Average jumped 596 points, or 2.3 per cent, to close at 26,671.9.

After a pause at 26,000, it extended the upmove. The index now tests resistance at 27,000.

A strong break above this level will strengthen the uptrend and take it higher to 27,500 and thereafter to 28,000. The supports to note are placed at 26,000 and then at 25,500. A decisive fall below the crucial base level of 25,000 will bring back selling pressure and pull the index down to 24,500 and then to 24,000 over the short to medium term.

Published on July 18, 2020

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