Technical Analysis

Index Outlook | Sensex, Nifty 50 show signs of weakness

Yoganand D BL Research Bureau | Updated on February 20, 2021 Published on February 20, 2021

The key indices have retreated from theirs record levels; downside pressure could continue

After a positive start last week, the bellwether indices — the Sensex and the Nifty 50 — started to decline while experiencing selling interest at higher levels. This could continue this week, too, and the February derivatives expiry could keep the indices choppy.

Hence, investors and traders should remain cautious.

On the global front, the Dow Jones was broadly range-bound, and a break-out on either side could lend direction to global peers.

Nifty 50 (14,981.7)

Following an initial rally, the Nifty 50 recorded a fresh high at 15,431 in the past week, but on the back of profit-booking and selling interest it started to decline. The index declined 181 points, or 1.2 per cent, last week.

It has moved back to test the significant level of 15,000.

The week ahead: In late January, the index took support in the 13,500-13,600 range and rallied strongly thereafter.

After a brief upmove beyond the psychological barrier of 15,000, the index retreated last week, forming a bearish engulfing candlestick pattern on the weekly chart. This pattern is a bearish reversal pattern that has short-term implication.

Moreover, the weekly relative strength index (RSI) is displaying negative divergence, implying trend-reversal is on the cards, and the daily RSI has entered the neutral region from the bullish zone.

Also, the daily price rate of change indicator has slipped into the negative terrain, implying selling interest; the weekly indicator is exhibiting negative divergence, backing the trend-reversal. Hence, traders with a short-term view should tread with caution and avoid taking fresh long positions on the index.

A decline below the immediate support level of 14,750 where the 21-day moving average is placed, can strengthen the corrective decline and pull the index lower to 14,500 initially and then to 14,280 levels over the short term. The next key supports are pegged at 14,000 and 13,600 levels.

On the upside, a bounce-back from the base level of 14,750 can keep the index consolidating sideways in the wide range between 14,750 and 15,300 for some time. Key resistance above 15,300 is at 15,500.

Medium-term outlook: Since the Nifty 50 index took support at 10,790 in September last year, it has been on a medium-term uptrend. This will stay intact as long as the index trades above the crucial support level of 12,750 levels.

Moreover, the intermediate-term uptrend that has been in place from last March continues to be in place.

We reaffirm that the medium-term uptrend will start weakening only if the index declines below the key base level of 12,750. If so, it can decline to the subsequent support levels of 12,400, 12,260 and 12,000.

In the short term, 14,500 could act as a key support — a plunge below this level can drag the index lower to 14,000 that could cushion the index.

The next support is at 13,500. As the index trades around the 15,000 mark, a decisive move above this level is needed to reinforce the bullish momentum and take it northwards to 15,500 over the medium term.

 

Sensex (50,889.76)

On the back of profit-booking, the Sensex fell 654 points, or 1.27 per cent, in the past week.

The index continues to test a key resistance at 51,000 from a medium-term perspective after registering a new high at 52,516.7 last week.

From a short-term view, the key immediate resistance is placed at 52,000, a strong rally above which can take the index higher to 52,500 and then to 53,000 levels.

Conversely, if the index plunges below the immediate base level of 50,000 mark, it can extend the corrective downmove and pull the index lower to the subsequent support levels of 49,000 and 48,000.

The short-term upmove that commenced from the 46,000 levels will be under threat on a conclusive fall below 48,000. In that case, the index can decline to 47,000 and then to 46,000 once again.

We reiterate that the medium-term uptrend that began from last the September low of 36,495 will remain intact as long as the index trades above 45,000 levels.

Supports thereafter are at 44,520 and 44,000. Investors with a long-term perspective can remain invested with a stop-loss at 40,000.

Nifty Bank (35,841.6)

The Nifty Bank index was volatile in the week ago.

It witnessed a sharp rally of 3.3 per cent on Monday that eventually got evaporated over the week, and the index closed the week in the negative territory, declining 0.74 per cent.

The index now tests a support in the band between 35,750 and 36,000.

An emphatic fall below this base can drag the index down to 35,500 and then to 35,000.

A further slump below the second base level can pull it lower to 34,000 over the short term, on the back of selling interest and profit-booking.

The key supports thereafter are pegged at 33,500 and 33,000.

As long as the index trades above the key support level of 29,000, the medium-term uptrend that has been in place from the September 2020 low of 20,400 levels will remain intact.

The supports below 29,000 are at 28,500 and 28,000 levels.

A rally above 36,500 can take the index higher to 37,000, thus limiting the upside.

A strong break above 37,000 is needed to reinforce the upmove and take the index higher to 37,500 or 38,000 levels.

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Published on February 20, 2021
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