Technical Analysis

Index Outlook | Sensex, Nifty 50 test vital barriers

Yoganand D BL Research Bureau | Updated on February 06, 2021

The recent strong rallies in Sensex and Nifty 50 have pushed them to new highs, but stay alert

The measures to reignite economic growth in the Budget boosted the local equity indices — the Sensex and the Nifty 50 — and took them to new highs recently. The positive global markets also backed the up-move.

The RBI kept the rates unchanged in the recent monetary policy meeting. The global cues could continue to provide direction in the coming week; investors should remain cautious.


Nifty 50 (14,924.2)

The Nifty 50 witnessed a strong rally last Monday, triggered by the Budget announcements, and gained 4.7 per cent on that session. The index jumped 9.5 per cent last week.

Extending the bullish momentum, it continued to trend upwards, breaching key resistances at 14,500 and 14,750. However, the rally got paused on Friday, and the index tested a key resistance at 15,000. This resistance needs a close watch now.

The week ahead: After taking support in the band between 13,500 and 13,600 in the past week, the index rebounded strongly, but it now tests a key psychological resistance at the 15,000 mark.

The daily relative strength index (RSI) has entered the bullish zone from the neutral region and the weekly RSI continues to features in the bullish zone but lacks strength. Further, the daily and the weekly price rate of change indicators are featuring in the positive terrain, indicating buying interest.

A strong break above 15,000 can push the index higher to 15,200 and then to 15,500 levels over the short term. But failure to decisively move beyond 15,000 can drag the index down to 14,750 and then to 14,500 levels. A strong plunge below the second base level can drag the index down to 14,280 and then to 14,000 levels.

We reaffirm that the short-term uptrend that started from the September 2020 low of 10,790 levels will stay in place as long as the index trades above the key level of 12,750.

Only a conclusive downward breakthrough of this level will mar the uptrend and drag the index down to 12,400, 12,260 and 12,000. Immediate supports below 14,000 are placed at 13,500 and 13,200.

Medium-term outlook: The recent strong surge in the index has restored the intactness of the medium- to intermediate-term uptrend that has been in place from last March. The key support at 14,000 can provide base if the index experiences any corrective decline in the coming weeks.

The next key base is at 13,500. On the upside, if the current hurdle is breached, the index can extend the rally to 15,500 levels over the medium term.

Sensex (50,731.6)

The Sensex jumped 4,445 points, or 9.6 per cent, last week, completely recouping the recent fall. It has managed to close above the key resistance level of 50,000, which could now act as a key support.

A fall below this level can pull the index lower to 49,000 and then to 48,000 levels.

The index now tests a resistance at 51,000. A strong rally beyond this level can take the index higher to 51,500 and then to 52,000 over the short term.

Vital supports to note below 48,000 are at 47,000 and 46,000, from which the recent rally had commenced. We restate that a decline below these support levels can pull the index lower to 45,550. As long as the index trades above the crucial support level of 45,000, the short-term uptrend that started from last September will remain in place.

Supports under 45,000 are pegged at 44,520 and then at 44,000. Investors with a long-term perspective can stay invested with a stop-loss at 39,800.

Nifty Bank (35,654.5)

The Nifty Bank zoomed 16.6 per cent the past week, decisively breaking above the key long-term resistance at 32,000. The index currently tests a resistance at 36,000.

With the formation of a gravestone doji candlestick pattern on Friday, near-term correction is on the cards. If the index fall below the immediate support level of 35,000, it can extend the correction and decline to 34,500 levels and then to 34,000-mark.

The next key supports are placed at 33,500 and 33,000. A strong rally beyond 36,000 can bring back bullish momentum and push the index higher to 36,600 and then to 37,000 levels. Traders should tread with a caution at this juncture.

We restate that only a decisive fall below the key short-term base level of 29,000 will be a threat to the short-term uptrend that has been in place since the September 2020 low of 20,400 levels. Supports thereafter are placed at 28,500 and 28,000 levels.

Published on February 06, 2021

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