Technical Analysis

The sentiment turns bearish

Yoganand D | Updated on March 25, 2018

The indices are expected to end the month in the red. Investors must tread with caution

Escalating trade war concerns spooked the market, with indices across the globe skidding last week. Indian benchmark indices fell by nearly 2 per cent to a five-month low. The Fed rate hike and increase in GDP forecast was overshadowed by the on-going trade war between China and the US, leading to sell-off in the last two trading sessions. Gold, in turn, gained 2.5 per cent last on safe-haven buying. Crude oil also advanced 5.4 per cent to close at $65.8 a barrel.

Both the Nifty and the Sensex are set to end the month in the red, for the second consecutive month, after tumbling 4.8 per cent and 4.9 per cent respectively in February. These indices have plunged about 4.7 per cent so far this month. With the market remaining closed on Thursday and Friday, investors should tread with caution in the truncated derivatives expiry week.



Nifty 50 (9,998)

A gap-down fall of 1.2 per cent on Friday has dragged the Nifty index lower to close the week on a negative note for the fourth successive week. The index has plunged 197 points or 1.9 per cent and has closed below the 10,000-mark for the first time since last October.

Short-term trend: The short-term trend continues to be down for the index. After a sharp fall last Monday, the index failed to gather bullish momentum and surpass the key resistance at 10,200. The 200-day moving average poised at 10,150 also failed to lend support for the index. Nevertheless, the index is now testing the next significant support in the band between 10,000 and 10,100.

A corrective up-move cannot be ruled out at this juncture and the index can rally to 10,100 or even to 10,200 levels in the near term. That said, the failure to find support in the significant support band and an eventual downward breakthrough can pull the index down to 9,800 and 9,700 in the short term.

The index trades well below its 21 and 50-day moving averages. The indicators in the daily chart continue to feature in the bearish territory, backing the downtrend. The weekly indicators are charting down and are showing signs of weakness. Key resistances beyond 10,200 are at 10,420; 10,500 and 10,600.

An emphatic rally above 10,600 levels is required to alter the on-going downtrend and take the index higher to 10,700 and then to 10,800 levels.

Medium-term trend: The index currently tests a key support in the band between 10,000 and 10,100. Though there could be a minor bounce back from this base, a decisive downward break below 9,950 will further strengthen the downtrend and pull the index down to 9,560 and 9,170 over the medium term. On the other hand, a strong rally above 10,700 is needed to push the index northwards to 11,000 and 11,200 levels in the medium term. Investors with a medium-term perspective and a low risk appetite can consider taking partial profits off the table at this juncture and re-entering at lower levels on witnessing signs of trend reversal.

Sensex (32,596.5)

Last week, the Sensex plummeted 579 points or 1.75 per cent, breaching a key supports at 33,000 as well as 200-day moving average.

Short-term trend: The index failed to find cushion at the key support and fell sharply last week. The short-term trend continues to be down for the index. Any corrective rally can encounter resistances at 32,865, which is the 200-day moving average, and then at 32,963, which is ceiling of the recent downward gap. A conclusive breach of these barriers can push the index northwards to 33,400; 33,800 and 34,000 levels.

Only a strong rally beyond 34,600, which is a key medium-term resistance, can alter the downtrend and push the index higher to 35,000 and 35,375 in the medium term.

But continuation of the downtrend can drag the index lower to test supports at 32,400 and 32,000 in the ensuing weeks. Further break below 32,000 will reinforce the downtrend and pull the index down to 31,800 and 31,650. Next key supports are at 31,400 and 31,200 levels.

Nifty Bank (23,670.4)

The Bank Nifty nose-dived 819 points or 3.3 per cent in the previous week, decisively breaching key supports at 24,500 and 24,000. Both the short and medium-term trends are down for the index. The daily relative strength index features in the bearish zone and the weekly RSI has entered this zone from the neutral region, backing the downtrend.

The index can extend its down-move and test support at 23,500 in the near term. Further breach of this base level can intensify the downtrend and drag it lower to 23,000 levels. Traders with a short-term perspective can go short in rallies with a fixed stop-loss at 24,000.

Subsequent supports below 23,000 are at 22,670 and 22,500. But a corrective rally can encounter resistances at 24,000 and 24,100 levels. An upward breach of these hurdles will push the index higher to 24,500 and 25,000-mark in the short term. Having said that, an emphatic move above 25,000 is needed to push the index higher to 25,500 and 25,700 levels. To change the downtrend, the index required to move beyond 26,000 conclusively. In that case, the index can trend higher to 26,500 or 27,000 levels.

Global cues

The Dow Jones Industrial Average tumbled 1,413 points or 5.7 per cent breaking below a key support at 24,000 in the previous week and closed at 23,533.2. Short-term outlook is bearish. It can break below the immediate support at 23,500 and find support at 23,000. Key resistances are at 24,000 and 24,500 levels.

The Nikkei 225 fell 4.5 per cent on Friday, conclusively breaking through the key support at 21,000. A slump below the support at 20,500 can drag the index down to 20,000 in the short term. Resistances to note are at 21,000 and 21,400 levels.

Published on March 25, 2018

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor