Technical Analysis

Index Outlook | Sensex, Nifty 50 test vital barriers

Yoganand D | Updated on March 29, 2020 Published on March 28, 2020

Key indices show signs of short-term recovery, but test crucial resistance; stay watchful

Taking cues from bearish global markets, the Sensex and the Nifty commenced the past week in the negative territory and hit the lower circuit breaker last Monday. The trading was closed for a while in that session.

But a global market rally, which was in anticipation of an US stimulus package, led domestic markets higher.

However, following the RBI’s 75 bps rate cut and other measures taken by it on Friday, key indices pared the Friday’s gains to close the week in the negative for six consecutive weeks in a row.

In the ensuing week, the domestic markets could follow the global markets.

Traders should remain cautious in the ensuing truncated week; the domestic exchanges are closed on Thursday on account of Ram Navami.

Nifty 50 (8,660.2)

It was another volatile week for the Nifty. After a large gap-down open on last Monday, the index extended its decline and found support at around 7,500, recording an intra-week low at 7,511 levels.

But the index bounced back strongly in the next three trading sessions, trimming the weekly loss to 85 ,points or 0.97 per cent. The recent recovery provides some near-term positive momentum.

The week ahead: The index breached the crucial support level of 8,500 and 8,000 last Monday. However, it subsequently reversed direction, triggered by positive divergence in the daily relative strength index (RSI) and witnessed a corrective rally.

The index currently tests a vital psychological barrier at 9,000 levels. The daily RSI is recovering from the oversold territory, but the weekly RSI continue to feature in the oversold territory, implying corrective rally can continue in the near term.

A strong rally above 9,000 and 9,280 can take the index higher to the short-term trend-deciding level in the 9,500-9,600 band. An emphatic breakthrough of this zone can alter the short-term downtrend and take the index northwards to 10,000.

Nevertheless, if the index fails to move beyond 9,000, it can decline and test supports at 8,260 and then 8,000 in the short term.

A further decline below 8,000 can drag the index lower to 7,500 once again.

Medium term: The medium trend continues to be down despite recent recovery in the index.

A decisive break above key medium-term resistance in the band between 10,000 and 10,150 is needed to alter the downtrend and take the index northwards to 10,335 and 10,500 in the ensuing weeks. The next significant resistances are at 10,750 and 11,000. On the other hand, a decisive fall below 8,000 can strengthen the downtrend and pull the index down to 7,500. A further decline below this base can drag the index lower to 7,230 and 7,000 levels over the medium term.

Sensex (29,915.9)

The Sensex was choppy last week and recorded a multi-year low at 25,638 before recovering to narrow down the weekly loss to 100 points or 0.34 per cent. This recovery was triggered by positive divergence in the daily RSI. It is on the brink of entering the neutral region from the bearish zone, and the weekly counter-part continues to feature in the oversold territory.

The index now tests a vital resistance at 30,000. A strong break above this level can pave the way for an up-move to 31,000 and then to 32,000 in the coming week. A further rally above 32,000 can push the index higher to 33,000, which is a key short-term trend-deciding level.

A conclusive breakthrough of this barrier can take the index northwards to 34,000 and then to 34,500 levels. The key resistances beyond these levels are at 35,000 and 35,600.

Conversely, if the index slumps below the near-term support level of 29,000, it can fall to 28,000 and then to 27,000 levels again in the short term.

The next supports are at 26,000 and 25,640. Investors with a high risk appetite can consider buying in declines with a long term stop-loss at 26,000.

Nifty Bank (19,969)

The Nifty Bank index slumped initially and recorded an intra-week low at 16,116 before staging a smart recovery to cut its weekly loss to 348 points or 1.7 per cent.

The index slumped below the lower boundary of the Bollinger Bands during initial part of the past week and bounced back from the oversold territory. It now tests a psychological resistance at 20,000.

A strong rally above this level can push the index higher to 21,000 and 22,000 levels. A further break above these hurdles can take the index higher to 23,000 and 24,000 levels in the short term. Inability to move beyond the current resistance level of 20,000 can pull the index down to 19,000 and then to 18,000 in the short term. A decisive plunge below 18,000 can reinforce the bearish momentum and drag the index down to 17,000 and then to 16,100 levels in the coming weeks.

Traders should tread with caution as long as the index tests the vital resistance. They can consider initiating fresh long positions on a strong rally above 20,000 with a fixed stop-loss.




Global cues

The Dow Jones Industrial Average Index zoomed 2,462 points, or 12 per cent, to close at 21,636.7 the previous week. This rally has formed a bullish engulfing candlestick pattern in the weekly ,chart which is a short-term bullish reversal pattern.

A break above 22,000 can push the index higher to 22,500 and then to 23,000. To alter the short-term downtrend, the index needs to emphatically break above 23,000 levels.

The next key resistances are at 23,500 and 24,500 levels. But a decisive fall below the immediate support level of 21,000 can pull the index down to 20,500 and then to 20,000. The next vital supports are pegged at 19,722 and 19,121.

Published on March 28, 2020

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