Technical Analysis

Index Outlook | Sensex, Nifty 50 test critical barriers

Yoganand D | Updated on April 25, 2020

The Sensex and the Nifty 50 were choppy and dropped slightly last week; near-term view is mixed

The week ago was choppy for both global and domestic equity markets. After an initial rally, the slump of the crude oil price futures into the negative territory dragged the equity markets across the global lower. The light crude recorded a multi-year low at $6.5 per barrel before recovering to close the week at $16.9 per barrel. In the coming week, the Sensex and the Nifty could continue to follow the global markets.

The April derivative expiry could stir volatility in the later part of the week. On the global front, the US Fed meeting is crucial for the markets and the economy, besides first-quarter gross domestic product numbers.


Nifty 50 (9,154.4)

Last week, the Nifty 50 index slumped 112 points, or 1.2 per cent, snapping a two-week rally. The key psychological support at 9,000 provided base for the index during the initial part of last week. It is currently range-bound.

The week ahead: The Nifty continued to test the key resistance at 9,280.

On the downside, the index has an immediate support at 9,000 and the next base is at 8,800.

For the past two week,s the index has been in a sideways movement between 8,800 and 9,400.

A decisive rally above 9,280 can take the index higher to 9,400 and then to the short-term, trend-deciding level in the 9,500-9,600 band. We reiterate that an emphatic break above this hurdle will alter the short-term downtrend and push the index northwards to 10,000 in the short term.

The daily relative strength index (RSI) hovers in the neutral region, whereas the weekly RSI is recovering from the oversold territory. Although the daily price rate of change indicator is featuring in the positive terrain, it exhibits signs of weakness. A tumble below the immediate base level of 9,000 can pull the index down to the lower boundary of the sideways range at 8,800 levels.

The next support is at 8,600. A downward breakthrough of this support will renew selling pressure and bearish momentum, and pull the index down to 8,400. The subsequent short-term support is at 8,000, which is a crucial level.

A conclusive plunge below the psychological base level of 8,000 can reinforce the downtrend and drag the index lower to 7,800 and 7,500 levels.

Medium term: There isn’t much change in the medium-term trend, which is down. This downtrend will continue to remain in place as long as the index hovers below the vital medium-term resistance in the 10,000-10,150 zone.

To alter the downtrend, the index needs to emphatically move above this resistance zone. In that case, the index can chart northwards to 10,335 and 10,500 over the medium term. The subsequent resistances are placed at 10,750 and 11,000. On the downside, the index has a key medium-term support at around 8,400.

A slump below this base will underpin the medium-term downtrend and drag the index lower to 8,000 levels. The support thereafter is at 7,500.

Sensex (31,327.2)

The Sensex was choppy and slumped 261 points, or 0.8 per cent, last week. It tests a vital resistance at 32,000.

An emphatic break above this hurdle will reinforce the bullish momentum and take the index northwards to a short-term, trend-deciding level of 33,000.

The subsequent resistances are at 33,500 and 34,000 levels. On the other hand, a drop below the immediate support level of 30,500 can pull the index down to 30,000-mark in the short term.

The supports thereafter are at 29,000 and 28,500. As long as the index trades above 28,500, the short-term uptrend that commenced from the March low of 25,638 will remain in place.

That said, a slump below this support will drag the index lower to 27,500 and then to 27,000.

The supports thereafter are at 26,500 and 26,000.

We restate that investors with a long-term view can buy in declines with a stop-loss at 26,000.

Nifty Bank (19,586.6)

Amid volatility, the Nifty Bank index plummeted 1,094 points, or 5.3 per cent, in the past week, declining below the key support level of 20,000.

Besides, the index has formed a bearish, engulfing candlestick pattern in the weekly chart, indicating short-term trend-reversal.

That means, the corrective rally that occurred recently has halted and the index could continue to trend downwards if it declines below the 21-day moving average and the immediate support level of 19,000.

In that scenario, the index can plunge to 18,500 and then to 18,000 in the coming weeks. Recently, it had failed to decisively close above 20,000-mark.

An emphatic break above this barrier is required to bring back bullish momentum and take the index northwards to 20,500 and then to 21,000, which is another crucial barrier to note.

A clear breach of this level will reinstate bullishness and take the index higher to 22,000 in the short term. The key resistances above 22,000 are at 23,000 and 24,000 levels.

Inability to move beyond 21,000 can result in a sideways consolidation phase between 18,000 and 21,000 for a while.

The daily RSI hovers in the neutral region and is poised above the 40 level. A slump below this level can bring back selling pressure; the weekly RSI continues to feature in the oversold territory.

Moreover, the daily price rate of change indicator is poised above the zero line; a fall below this level will reinforce selling interest.

On the downside, a decline below the short-term support level of 18,000 can drag the index down to 17,500 first and then to 17,000 in the short term. Traders with a short-term view-point can go short with a fixed stop-loss on a fall below 19,000 levels.

Global cues

The Dow Jones Industrial Average index plunged 467 points, or 1.9 per cent, to close at 23,775.2 in the past week. It continues to test a resistance at 24,000. A break above this level can see the index trending upwards to 25,000 with a small pause at 24,500.

The key short-term trend-deciding level is at 25,000. A clear break above this barrier will alter the down-trend and take the index northwards to 26,000 and then to 27,000 in the medium term. The near-term supports are at 23,500 and 23,000 levels.

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Published on April 25, 2020
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