Technical Analysis

Index outlook: Stocks in choppy waters

Yoganand D | Updated on January 23, 2018 Published on May 09, 2015


For a positive trend to emerge, the indices must move above key levels

Indian markets were on tenterhooks as foreign investors turned averse to Indian stocks and went on a selling spree last week.

After a positive opening last Monday, both the Sensex and the Nifty nose-dived on a medley of reasons — uncertainty over the demand for minimum alternative tax from foreign portfolio investors, concerns on weak corporate earnings and a sudden spike in crude prices.

The FPI’s sell-off has pulled the rupee below the ₹64 level against the dollar.

However, after recording a six-month low, the Sensex and the Nifty bounced back sharply on Friday after the Government’s promise of a high-level committee to look into the MAT issue.

A short-squeeze and value buying may also have triggered the rebound. The week ahead could remain volatile for the indices.

Sensex (27,105.3)

The Sensex was very choppy and continued to hover below its 200-DMA last week.

The week ahead: The formation of a spinning top candlestick pattern in the weekly chart depicts a neutral stance and does not give a clear signal about the future movement of the index. As the pattern is formed at the lower end of the medium-term downtrend, it suggests that bears are losing grip and the index may be on the brink of forming a bottom.

Moreover, the significant support around 26,500 provides base. The momentum indicators in the daily chart are trending slightly higher.

But the momentum indicators in the weekly chart are trending down, which poses a threat.

In the week ahead, the index needs to witness a rally beyond its 200-day moving average poised at 27,540.

Subsequent short-term resistances are placed at 27,760 and 28,250. However, if the index fails to rally beyond 27,760 it will signify that the index can trend lower to 27,710, 26,425 and 26,317.

Medium-term trend: The medium-term trend has been down since the peak of 30,024.

A decisive fall below the immediate key support level of 26,425 can pull the index down to 26,317 initially. A strong close below this level can take the index lower to 25,257 levels in the medium term. Nevertheless, a conclusive rally beyond 28,250 will alter the bearish stance.

Nifty (8,191.5)

The Nifty made a positive start by moving above its 200-day moving average line but failed to sustain its up move and plunged sharply. However, the psychological support level of 8,000 kept the fall in index under check.

The index closed on a positive note by marginally inching up. But it continues to trade below its 200-DMA.

The week ahead: The Nifty also formed a spinning top candlestick pattern in the weekly chart, indicating neutral stance and indecisiveness. The index has a significant resistance in the band between 8,300 and 8,340. The 200-day moving average line is poised just below this resistance band and could also act as a barrier. An emphatic rally beyond the immediate resistance band can push the index higher to 8,430 and then to 8,530 levels.

However, the inability to move above 8,430 will reinforce bearish momentum and trigger fresh selling. In such a scenario, the index can slip to 8,120, 8,065 and 8,000.

Medium-term trend: Last week, the index almost touched the initial medium-term price target level of 7,994 by recording an intra-week low at 7,997. The medium-term trend continues to be down for the index.

A strong downward breakthrough of the key support at 8,000 can reinforce bearish momentum and pull the index down to 7,750 and then to 7,600 levels.

On the other hand, the medium-term bearish outlook will reverse on an emphatic close above 8,600 levels.

Global cues

The Dow was volatile and surged 267 points or 1.5 per cent on Friday, taking the index close to its new high of 18,288 marked in early March.

A decisive break above18,300 can push the index northwards to 18,547 and 19,025 in the medium term.

Having said that, a fall below 17,500 can alter the bullish outlook. Immediate supports are at 17,840 and 17,500.

The Friday’s surge has helped the European indices close the week on a positive note. Japanese index Nikkei 225 declined 152 points last week. Most of the Asian markets ended the week on a negative note.

Published on May 09, 2015
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