Technical Analysis

Index Outlook | Sensex, Nifty 50 test key resistances

Yoganand D | Updated on October 23, 2020 Published on October 23, 2020

Sensex, Nifty 50 advanced this week, but face barriers ahead; investors need to be cautious

The domestic benchmark indices — the Sensex and the Nifty 50 — witnessed a rally amid volatility this week. Next week, the on-going Q2 earnings announcements are vital. The derivative expiry of October can keep the benchmark indices choppy. So investors should remain cautious.

On the global front, the impending US Presidential election, US consumer confidence data and the European Central Bank’s (ECB) policy decision are key happenings that investors need to keep an eye on.

Nifty 50 (11,930.3)

This week, the Nifty 50 index advanced 167 points, or 1.4 per cent, amid volatility. The index continues to test a significant resistance at 12,000, a psychological barrier to watch out.

Week ahead: Following a sharp fall last week, the index took support at around 11,660 this week and continued to trend upwards. This week, it surpassed a resistance at 11,800 but encountered the next at 12,000. An emphatic breakthrough of the vital resistance at 12,000 is needed to reinforce the bullish momentum and push the index higher to 12,200 and then to 12,400 levels in the ensuing weeks.

A downward reversal from the current resistance can drag the index down to the immediate support level of 11,800. A slump below this base can pull the index lower to 11,600 thereafter.

In that scenario, the index can witness a sideways movement in the band between 11,600 and 12,000 for sometime before taking a clear direction.

Both the daily and the weekly relative strength indices (RSIs) are featuring in the bullish zone, but lack strength. Likewise, the daily and the weekly price rate of change indicators are charting downwards in the positive territory, displaying divergence.

Hence, the near-term movement of the index is crucial.

A conclusive fall below the short-term base level of 11,600 can bring back selling interest and drag the Nifty 50 lower to 11,450, and then to 11,200 over the short term. The subsequent supports are at 11,150 and 11,000 levels.

The short-term uptrend will stay in place as long as the index trades above the crucial support level of 11,000.

Medium term: Since the March low of 7,511, the index has been on a medium- to intermediate-term uptrend. But it has been testing a key barrier at 12,000, a psychological level, over the past two weeks.

An emphatic break above the resistance level of 12,000 can strengthen the uptrend and take the index higher to a lifetime high of 12,430, and consequently, it can record a new high over the medium term. On the other hand, the index has an immediate support at 11,500; the next one is at 11,000.

If it declines below the base level of 11,000, the medium-term uptrend will start waning and the next key supports are placed at 10,600 and 10,200.

A decline further below these supports can pull the index down to 10,000 and then to 9,800 in the medium term.

Sensex (40,685.5)

The index advanced 702 points, or 1.7 per cent, in the midst of choppiness this week. However, it faces a key resistance at 41,000 that had capped the rally last week.

We restate that a decisive break above 41,000 levels is needed to strengthen the uptrend and take the index higher to 41,700 and then to 42,000 over the short to medium term.

Conversely, if the index reverses down from the 41,000 level, it can take supports at 40,000 and then at 39,660. A further fall below the medium-term support level of 39,500 can pull the index lower to 39,000 over the short term.

The uptrend that started from the September low of 36,495 will remain in place as long as the index trades above the vital support level of 38,000. That said, if the index falls below this support, it can decline to 37,500 and then to 37,000 over the short term.

We reiterate that the short-term trend will remain up as long as the index trades above the trend-deciding level in the 36,500-36,600 zone. The support thereafter is pegged at 36,000. Investors with a long-term perspective can stay invested with a stop-loss at 35,000.

Nifty Bank (24,478.3)

The Nifty Bank index continued to trend upwards in the midst of choppiness, and advanced 945 points, or 4 per cent, this week.

Recently, the index took support at 23,000 and resumed the up-trend that began from the late September low of 20,404.

While trending up, the index breached the 21- and 50-day moving averages, and trades well above these moving averages.

That said, the index faces a key hurdle ahead at 25,000, from which it had reversed downwards in late August.

So, traders should tread with caution at the key resistance level of 25,000. A decisive break above this level will underpin the uptrend and push the index northwards to 25,500 and then to 26,000 over the medium term.

A downward reversal from the resistance level of 25,000 can drag the index lower to 24,000 initially.

A plunge blow this support can drag it down to 24,500 and then to 23,000 in the short term.

The short term uptrend that commenced from the September low will stay intact as long as the index trades above the key support level of 23,000.

Nevertheless, a slip below this base will start threatening the uptrend and pull the index lower to 22,350 and then to 22,000.

As the index faces a crucial resistance ahead at 25,000, traders with a short-term perspective should tread with caution and take fresh long positions above 25,000 levels with a fixed stop-loss.

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Published on October 23, 2020
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