Technical Analysis

Index Outlook | Sensex, Nifty 50 reverse from key resistance levels

Yoganand D | Updated on May 09, 2020

People are being checked before entering the Bombay Stock Exchange for COVID-19 in Mumbai.   -  Paul Noronha

Sensex, Nifty 50 have fallen sharply and hover above respective key support; stay alert

The domestic equity indices — the Sensex and the Nifty 50 — began last week on the back foot, taking bearish cues from the global markets, and continued to trend downwards.

Selling pressure and profit-taking at higher levels kept the indices in a narrow band for the rest of the week.

The US markets’ higher close on Friday could trigger a positive start in domestic markets this week . However, the Sensex and the Nifty need to move above the key resistance level of 33,000 and 9,600, respectively, to bring back the bullish momentum.

This week, global investors will watch comments from US Fed eral Reserve Chairman on the economy and further Fed programmes to fight the pandemic. Domestic investors should continue to tread with caution.

 

Nifty 50 (9,251.5)

Last week, the Nifty 50 plunged 608 points, or 6.2 per cent, eroding most of the gains recorded in the week before. With the recent slump, the index has failed to conclusively sustain above the key short-term, trend-deciding level in the 9,500-9,600 band.

The index has vital resistances at 9,860 and then 10,000.

The week ahead: After moving above the crucial resistance band between 9,500 and 9,600, the index could not stay above this barrier.

Instead, last Monday, it plummeted below this band, signalling that the short-term trend has not changed. The rally from the March low of 7,511 points to the recent peak of 9,889 points appears to be a corrective rally and needs to be observed in the ensuing weeks.

An emphatic break below the immediate support level of 9,000 can reinforce the bearish momentum and drag the index down to 8,800 levels.

But a further fall below this base will mitigate the short-term corrective uptrend and drag the index lower to 8,600 and then to 8,400 levels in the coming weeks. A conclusive decline below the psychological base level of 8,000 can drag the index down to 7,800 and 7,500 levels.

On the other hand, a decisive rally above the key, trend-deciding level in the 9,500-9,600 band will strengthen the uptrend that had commenced from the March low, and take the index northwards to 9,730. A further break above this hurdle will push the index higher to 9,860 and then 10,000-mark.

Medium term: We reiterate that the medium-term tend is still down and will remain down as long as the index trades below the significant resistance in the 10,000-10,150 band.

A decisive break above this zone will change the downtrend and take the index northwards to 10,335 and 10,500 in the medium term.

The subsequent resistances are placed at 10,750; ,0,830 and 11,000. Conversely, if the index fails to take support at theimmediate base level of 9,000, a plunge will ensue that will reinforce the medium-term downtrend, and drag the index lower to the next key medium-term support at 8,400. The next supports below this level are pegged at 8,000 and 7,500.

Sensex (31,642.7)

The Sensex nosedived 2,074 points, or 6.2 per cent, in the past week. It has decisively breached a key support level of 33,000 and continued to trend downwards. The immediate resistance is at around 32,000.

A decisive rally above this level can push the index higher to the crucial resistance 32,748, which is the floor of the gap that occurred last Monday. The next resistance is at 33,355, which is the ceiling the gap. A strong break above this barrier can pave the way for an up-move to 34,000 over the medium term.

That said, an emphatic fall below the immediate support level of 31,000 can pull the index down to 30,500. A further slump below the psychological support level of 30,000 will alter the corrective uptrend and drag the Sensex lower to the next key supports at 29,000 and 28,500 over the medium term.

The short-term uptrend that commenced from the March low of 25,638 will remain in place as long as the index trades above 29,500. Investors with a long-term perspective can buy in dips with a stop-loss at 27,500.

Nifty Bank (19,352.9)

The Nifty Bank has tumbled 2,181 points, or 10 per cent, underperforming the bellwether indices in the past week. After forming an evening star doji pattern in the daily chart last Monday, the index resumed its downtrend. A key resistance at 22,000 had limited the upside recently.

A downward break below the immediate support level of 19,000 will strengthen the downtrend and pull the Nifty Bank lower to 18,500 and then to 18,000 levels in the coming weeks. The next key supports are at 17,500 and 17,150 levels.

Traders with a short-term view can consider initiating fresh short positions on a fall below 19,000 levels with a fixed stop-loss.

On the other hand, the near-term resistances are at 20,000 and 20,530. As long as the index trades below the second resistance, the selling pressure will be intact. A conclusive break above 20,530 can push the index higher to 21,000 and then to 21,500 levels.

Global cues

Last week, the Dow Jones Industrial Average index surged 607 points, or 2.7 per cent, to close at 24,331.3 levels.

The index managed to find support at around 23,500 and bounced back, gaining above the immediate resistance level of 24,000 on Friday.

The immediate resistance is at 24,500 and a break above this hurdle will strengthen the bullish momentum. In that case, the index can trend upwards to 25,500 and then to 26,000 levels.

On the other hand, a decline below the immediate support level of 23,500 can reinforce the bearish momentum and pull the index lower to 23,000 and then to 22,500 levels.

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Published on May 09, 2020
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