Technical Analysis

Index Outlook: Sensex, Nifty hover at crucial levels

Yoganand D | Updated on February 09, 2020 Published on February 08, 2020

It was a comeback week for the Sensex and the Nifty after the Budget day slump, but they face key hurdles ahead

The past two weeks were volatile both for global and domestic equity indices. After a sharp plunge in the previous week, the indices witnessed a strong comeback this week.

While the fear around coronavirus continues to escalate, the US market posted a strong rally, on the back of corporate earnings and employment data beating expectations and easing the worry over economic growth.

On the domestic front, after Budget, the focus was on the RBI’s policy meeting. While the RBI kept its policy rate on hold, it announced other measures to boost credit growth and ease interest rates in the economy. This kept the domestic indices buoyant.

In the ensuing week, the attention will be on the global markets that can provide further direction. Also, the movement of crude oil price that has been trending down since the beginning of this year, needs to be watched. Crude currently trades at about $54 a barrel.

Nifty 50 (12,098.3)

Last week, the Nifty index took support at around 11,600 and bounced back strongly — the 200-day moving average at 11,655 also provided cushion.

The index gained 436 points, or 3.7 per cent, in the past week, recouping most of the loss occurred in the week before.

It encountered a key resistance on Friday between 12,100 and 12,150, where it coincides with the 61.8 per cent Fibonacci retracement of the previous downtrend.

 

 

From there, it declined slightly, snapping its four-day winning streak. Now the index hovers at a vital level after two weeks of high volatility. The sharp gyrations need to settle for a clear direction to emerge. The daily as well as the weekly oscillators and indicators are displaying mixed cues.

The index also tests the 21- and 50-day moving averages at the current levels.

A conclusive break above 12,150 can alter the downtrend and take the index higher to 12,250 and then to 12,350 levels. A further rally above these levels can push the index northwards to the resistance band of 12,450-12,500. An inability to move beyond 12,150 can keep the index in a sideways movement for a while. The near-term supports at 12,000 and 11,850 can provide base.

However, a decisive fall below 11,850 can bring back selling interest and drag the index down to 11,750 and then to 11,600 levels once again in the short term.

A strong plunge below 11,600 will strengthen the downtrend and can pull the index down to 11,500 and then to 11,350 or 11,200.

Medium-term trend: Taking support just above 11,600, the index did a volte-face and witnessed a sharp rally in the past week.

But it now tests a crucial resistance at 12,150. A clear rally above this barrier can reinforce the bullish momentum and take the index higher to 12,300 and 12,500 in the ensuing weeks.

A further rally above 12,500 can take it higher to 12,700 and then to 12,900 levels. On the other hand, an emphatic fall below the key immediate support level of 11,700 can drag the index lower to the subsequent base at 11,500. The trend-deciding level at 11,300 then comes at play. The key supports thereafter are at 11,000, 10,800 and 10,700 in the medium term.

Investors can consider buying in declines with a stop-loss at 11,300 levels.

Sensex (41,141.8)

The Sensex jumped 1,406 points, or 3.5 per cent, last week, recovering most of the Budget week’s decline. It faces a key resistance ahead at 41,500. A break above this hurdle can take the Sensex upwards to the 42,000 mark in the short term. A further rally can encounter resistance at 42,500 over the medium term.

That said, an inability to break above 41,500 can see sideways movement and the immediate supports at 40,700 and 40,500 can provide base. A slump below 40,500 can pull the index down to the psychological support level of 40,000.

The key supports below this base are at 39,500 and 39,000.

As long as the index trades above 39,000, the medium-term uptrend that has been in place from September last year will be intact. Only a strong fall below this level will alter the trend downwards and pull the index southwards to 38,500 and 38,000 over the medium term.

Nifty Bank (31,201.9)

The Nifty Bank had outperformed the bellwethers last week and skyrocketed by 1,381 points, or 4.6 per cent. The entire recovery has led to the formation of a bullish engulfing candlestick pattern in the weekly chart.

This pattern is a bullish reversal pattern.

Having said that, the index faces a vital resistance ahead at 31,500 that needs to be breached to alter the short-term downtrend that has been in place since encountering a key resistance at 32,500 in last December.

In such a scenario, the index can trend upwards to 32,000 and 32,500 in the ensuing weeks.

Traders with a short-term view can initiate a fresh long position with a fixed stop-loss on a strong rally above 31,500 levels. Both the daily and the weekly relative strength indices are featuring in the neutral region. The daily price rate of change indicator has entered the positive terrain, implying buying interest.

Significant near-term supports at 30,500 and 30,000 could provide cushion, if the index witnesses selling pressure.

The next supports are at 29,500 and 29,000.

Global cues

Last week, the Dow Jones Industrial Average staged a strong recovery and recorded a new high.

But it marginally recoiled last Friday to close the week at 29,102.5 levels. It has jumped 846 points, or 3 per cent.

The index tests a resistance at 29,350. A clear break above this level can take it higher to 23,500 and then to 23,700 levels. Conversely, a fall below the 28,850 support level can pull the index down to 28,500 and 28,250 levels.

Published on February 08, 2020
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