Technical Analysis

Index Outlook | Sensex, Nifty 50 remain volatile in the near term

Yoganand D BL Research Bureau | Updated on January 10, 2021

Both the Nifty 50 and the Sensex continue to record new highs, but stay alert

Last week, the key benchmark indices — the Sensex and the Nifty 50 — moved higher amid volatility. The coming weeks are crucial for the indices as the bluechip stocks are to announce their third-quarter results —this can lend some direction and global markets may turn choppy. Hence, traders should stay cautious this week.

 

 

Nifty 50 (14,347.2)

Last week, the Nifty 50 surpassed a key barrier at 14,000 and recorded a new high at 14,367. The index surged 328 points, or 2.3 per cent, on the back of buying interest.

The week ahead: Following a sharp fall on December 21, 2020, the index took support at 13,131 and bounced up strongly, breaching a key resistance at 13,770 initially and then 14,000 recently. The Nifty 50 continued to scale new highs, but last week, it started to witness minor selling pressure at higher levels.

Moreover, the daily and the weekly relative strength indices (RSIs) are featuring in the overbought territory, implying near-term corrective decline. The prrice rate of change on the daily chart is trending down.

Besides, the index continues to test the upper boundary of the weekly Bollinger Bands, signifying that correction is likely in the near future. Hence, traders with a short-term view should tread with caution in the ensuing weeks while long-term investors can stay invested.

A decisive fall below the immediate support level of 14,000 can pull the index down to 13,770 initially and then to the 13,480-13,500 support zone. The next supports are at 13,200 and 13,000 levels. As long as the index trades above a significant base level of 12,750, the short-term uptrend will remain in place. But a conclusive plunge below this base will alter the uptrend that has been in place since the September low of 10,790 levels. In such a scenario, the index has the potential to trend downwards to test supports at 12,400 and 12,260 levels. The next key support is pegged at 12,000.

On the other hand, an upward reversal from the key support level of 13,770 or 13,500 can lead to a sideways consolidation phase above these supports. Continuation of the uptrend can test a resistance at 14,400 and then at 14,500 levels. A further rally above these barriers can take it higher to 14,800 levels.

Medium-term outlook: The medium-term trend continues to be up for the index. However, caution has to be exerted as the uptrend is accelerated almost vertically.

Key supports on a strong fall below 14,000 are at 13,500 and 13,000 levels. A tumble below the crucial base level of 13,000 can pull the index down to 12,430 and then to 12,000 over the medium term. Resistances to be noted are at 14,500 and 14,800.

Sensex (48,782.5)

The Sensex recorded a new high of 48,854.3 amid volatility last week — it has climbed 913 points, or 1.9 per cent. The index now faces a key resistance ahead at 49,000.

A conclusive breakthrough of this hurdle can take the index higher to 49,300 and then to 49,500 levels. On the downside, the index has a support at 48,000 and then 47,000 levels that can lend a base in case of a corrective decline that is likely to occur soon or later. A plunge below 47,000 can drag the index lower to 46,500 and then to 46,000 over the short to medium term.

We reiterate that as long as the Sensex trades above a vital base level of 45,000, the short-term uptrend will remain in place. Investors with a long-term horizon can remain invested with a revised stop-loss at 39,800.

Nifty Bank (32,084.2)

In the midst of volatility, the Nifty Bank index advanced 858 points, or 2.5 per cent, and the index is back to pre-Covid levels. Although both the medium- and short-term trends are up, the short-term uptrend is losing momentum.

The index now tests key resistance at 32,000 levels. A strong breakthrough of this level is needed to strengthen the uptrend and take the index higher to 32,500 and then to 33,000 levels. Moreover, the index has a key long-term resistance in the band between 32,000 and 32,500, which can trigger a near term correction. So, traders should tread with caution in the ensuing weeks.

A decisive rally above 33,000 can pave the way for an up-move to 33,500 and then to 34,000 over the medium term. Key supports are at 31,500 and 31,000 levels.

An emphatic plunge below the 31,000 can bring back selling interest and pull the index down to 30,500 and 30,000 levels. The supports below 30,000 are at 29,500 and then at 29,000.

Published on January 09, 2021

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