Technical Analysis

Index Outlook | Sensex, Nifty 50 test key hurdles

Yoganand D BL Research Bureau | Updated on December 26, 2020

Both the Nifty 50 and the Sensex witnessed a sharp 3% fall before staging a smart recovery

The previous week was highly volatile for the equity benchmark indices — the Sensex and the Nifty 50. They witnessed sharp falls, but also bounced back strongly to finish the truncated week on a flat note.

In the December derivative expiry week, the indices could remain choppy again. So, traders should remain watchful.

Nifty 50 (13,749.2)

The Nifty 50 witnessed a sharp fall of 3 per cent before staging a smart recovery in the subsequent trading sessions to close the week on a flat note. The index has slipped marginally by 11 points, or 0.08 per cent.

The week ahead: Last week, the index witnessed a sharp slump below the crucial support level of 13,500 and recorded an intra-week low at 13,131 on Monday. It took support at around 13,200 and bounced up, to eventually close above the support level of 13,500.

The daily relative strength index (RSI) has re-entered the bullish zone after a dip to the neutral region, and the weekly RSI continues to feature in the bullish zone. The ensuing week’s movement is crucial to determine the short-term trend for the index; it now tests a resistance at 13,772. A strong rally above this level can take the index higher to testthe next vital barrier at 14,000 levels.

Inability to move beyond the current resistance can once gain drag the index down to the immediate support level between 13,480 and 13,500. The immediate support to note is at 13,600. A strong plunge below 13,500 can drag the index lower to 13,200 and 13,000 levels. The next vital base is placed at 12,750.

The key support below these bases is pegged at 12,750. A further decline below the vital support level of 12,750 will mitigate the short-term uptrend that has been in place since the index took support at the September low of 11,790. In that case, the index can decline to 12,400 and 12,260 levels. The next key support is pegged at 12,000.

Medium-term outlook: Despite choppiness in the past week, the medium-term trend remains up for the index. Continuation of the last week’s rally can take the index higher to test the key psychological resistance at 14,000 in the coming weeks.

We reiterate that a decisive break-out of 14,000 can pave the way for an up-move to 14,500 over the medium term. But failure to move beyond 14,000 can keep the index on a sideways consolidation phase for a while.

On the other hand, a plunge below the vital base level of 13,000 can drag the index down to 12,430 and then to 12,000 over the medium term. Key supports thereafter are at 11,500-11,640 zone and at 11,000.

 

Sensex (46,973.54)

Last week, the Sensex was choppy — it marked an intra-week low at 44,923 on Monday and bounced up subsequently to close the week almost on a flat note, up by 12 points. The index now tests a key resistance at 47,000 mark.

The daily RSI has corrected from the overbought territory and features in the bullish zone. A conclusive break above the current resistance level can take the index higher to 47,500 and then to 48,000 over the short term.

On the other hand, if a corrective decline occurs again, the index can test an immediate support at 46,000. A further slump below this base can pull the index down to 45,600 and then to 45,000 that had cushioned the index last week. The supports thereafter are at 44,520 and 44,000 levels.

As long as the Sensex trades above the crucial base level of 45,000, the short-term uptrend will stay in place. But a strong plunge below this support can pull the index down to 44,000 in the medium term. Investors with a long-term horizon can remain invested with a stop-loss at 39,000.

Nifty Bank (30,402.2)

Last week, the Nifty Bank index slumped 312 points, or 1 per cent, in the midst of choppiness. The index has formed a hanging man candlestick pattern on the weekly chart, which is a bearish reversal pattern that needs conformation. The index has to move lower and form a weekly bearish candle next week to valid this reversal pattern.

On the upside, the key resistance at around 30,850 is limiting the index. A downward reversal from this hurdle can drag the index down to the immediate support level of 30,000. A strong decline below this base can pull the index down to 29,500 and then to 29,000 levels on the back of selling interest.

We restate that a further tumble below 29,000 will signify that a short-term trend-reversal is in the offing, and will pull the index lower to 28,000. Subsequent supports are placed at 27,000 and 26,000 levels.

On the contrary, a conclusive break above the immediate resistance level of 31,000 can bring back bullish momentum and take the index northwards to 31,500 and then to 32,000 in the short term. Traders with a short-term view should tread with caution as long as it is range-bound between 30,000 and 31,000.

Published on December 26, 2020

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