Technical Analysis

Index Outlook | Sensex, Nifty 50 seem range-bound

Yoganand D | Updated on August 08, 2020 Published on August 08, 2020

Sensex, Nifty 50 bounced back smartly last week from a key base; investors should remain cautious though

Last week, the domestic equity benchmark indices — the Sensex and the Nifty 50 — managed to recover smartly following an initial sharp fall. Buying interest was also witnessed in mid- and small-cap stocks.

In the RBI’s recent monetary policy meetings, rates were left unchanged. The industrial output data that is set to release this week needs to be watched.

 

Nifty 50 (11,214)

After an initial slip, the Nifty 50 tested a key support at 11,000 and bounced up strongly. But the index faces key resistances ahead at 11,300 and 11,433 levels.

The short-term uptrend is intact though.

The week ahead: The short- as well as the medium-term trends are up. However, the near-term trend has been sideways over the past three weeks and is in a corrective phase.

Last week, the index recorded an intra-week low at 10,882 and recovered smartly. Over the past three weeks, it has been range-bound between 10,900 and 11,300. A decisive rally above 11,300 can take the index higher to 11,433. A further breakthrough of 11,433 can push the index upwards to 11,600 in the ensuing weeks.

The daily relative strength index (RSI) has entered the bullish zone from the neutral region and the weekly RSI is on the verge of entering the bullish zone from the neutral region.

Besides, the daily price rate of change indicator has entered the positive terrain, implying buying interest.

On the downside, an immediate support is at 11,000, a fall below which can drag the index down to 10,850.

We restate that a strong decline below this support can bring back selling interest and drag the index down to the key support level of 10,600.

The next support is at 10,500, a conclusive fall below which can drag the index lower to 10,200 and then to 10,000 over the short term. The key base level of 9,800 can provide support thereafter; the short-term uptrend will stay intact as long as the index trades above this base. The supports below 9,800 are placed at 9,600 and 9,400 levels.

Medium term: The medium-term uptrend has been intact since the March low of 7,511.

Last week, the index managed to stay above the key medium-term level of 11,000 amid choppiness.

A strong plunge below 11,000 can bring back selling pressure and drag the index down to the medium-term support at 10,500.

The next vital base is at 10,000. A strong plunge below the psychological base level of 10,000 can drag the index down to the subsequent support level of 9,400. Any further decline could change the medium-term uptrend and pull it downwards to 9,200 or 8,800 levels.

Conversely, an emphatic breakthrough of 11,400 can push the index northwards to 11,600 levels in the medium term.

The subsequent key resistance for the index is at 11,850.

Sensex (38,040.57)

In the midst of volatility, the Sensex climbed 433 points, or 1.15 per cent, in the past week. It took support at around 37,000 and the 200-day moving average, after a sharp fall last Monday.

The index now tests a resistance at 38,000. A strong move in the coming week can push it higher to 38,500 levels. A further move beyond this level can push the index higher to 39,000 over the medium term.

The next resistances are at 39,500 and 40,000 levels.

Conversely, an emphatic plummet below 37,000 can drag the index down to 36,500 and then to 36,000 levels. The subsequent key supports are pegged at 35,500 and 35,000.

As long as the index trades above the 35,000-mark, the short-term uptrend will remain in place. A decline below 35,000 can bring back selling pressure and drag the index down to 34,000. A strong decline under this base can see the index trending down to 33,000 and then to 32,500 levels over the medium term.

The medium-term uptrend in place since the March low will remain intact as long as the index trades above the 30,000 mark.

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

Investors with a long-term perspective can stay invested with a stop-loss at 30,500.

Nifty Bank (21,754)

Last week, the Nifty Bank was volatile and advanced marginally by 114 points, or 0.5 per cent.

It now faces a key resistance ahead at 22,000. A strong break above this hurdle can take the index higher to 22,500 levels in the coming week. A further rally beyond 22,500 can pave the way for an upmove to 23,000 levels, which is a significant short-term resistance.

We restate that a decisive break above this hurdle is needed to bring back bullish momentum and take the index northwards to 23,500 and then to 24,000 over the short to medium term. Traders with a short-term view can initiate fresh long positions on a conclusive jump above 22,000 with a fixed stop-loss.

Conversely, if the index slumps below the vital support level of 21,000, it can bring back selling interest and drag Nifty Bank lower to 20,500 and 20,000 levels over the short term.

A strong plunge below 20,000, a key medium-term support, can drag the index down to 19,500.

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

Global cues

Regaining the bullish momentum, the Dow Jones Industrial Average zoomed 1,005 points, or 3.8 per cent, breaching a key resistance at 27,000 and closed at 27,433.5 in the last week. It now faces a hurdle at 27,500, a breach of which can take the index higher to 28,000 over the short term.

Any corrective decline can find support at 27,000 initially and then at 26,500. A strong plunge below the second base can pull the index down to 26,300 and then to 26,000.

The next crucial supports are at 25,500 and 25,000.

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Published on August 08, 2020
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