Technical Analysis

Index Outlook: Watch out for key resistance levels

Yoganand D | Updated on April 10, 2021

Representative image   -  istock.com/scyther5

Trend in the rupee movement and Q4 earnings can give direction to the market

It was a volatile week for the bellwether indices — the Sensex and the Nifty 50 finished marginally in the negative territory. Continued weakness in Nifty Bank can put pressure on the broader indices in the coming truncated week. The weakening rupee against the dollar and kick-off of the Q4 earnings season stocks can provide near-term direction to the indices.

Nifty 50 (14,834.8)

The Nifty 50 index witnessed volatility during the past week. It slumped 1.5 per cent on Monday but gradually recovered and ended the week only marginally on the negative side — down 32 points or 0.2 per cent.

The week ahead: The index continues to test the 21- and 50-day moving averages at current levels and also tests a resistance at around 14,870. A breach of this level can take the index northwards to the psychological hurdle at 15,000. We mentioned last week that a decisive breakout of this resistance is needed to strengthen the bullish momentum and take the index higher to 15,200 and thereafter to 15,400 levels in the short term. Inability to move past 15,200 can result in a minor pause before the index continues to trend upwards and test the vital barrier at 15,400 levels. The daily and the weekly price rate of change indicators feature in the positive terrain, indicating buying interest. The daily relative strength index (RSI) features in the neutral region while the weekly RSI continues to feature in the bullish zone.

Key support at 14,500 had cushioned the index in the past week as it recorded an intraweek low at 14,459 and bounced up. The vital base level of 14,500 will continue to act as a key base. A strong fall below this base level can pull the index down to 14,400 and then to 14,280 levels. Subsequent crucial support is placed at 14,000 levels and a decisive fall below this base can bring back selling pressure and drag the index lower to the next support that is in the range of 13,500-13,600.

Medium-term outlook: The index has been in a medium-term uptrend since the December 2020 low of 13,131 levels. Also, the intermediate-term trend has been up for the index since it took support at 10,790 last September. As long as the index trades above the vital base level of 12,750 the intermediate-term uptrend will remain in place. Only a decisive slump below this base will mitigate the uptrend and drag it lower to the following support levels of 12,400, 12,260 and 12,000 over the medium term.

To alter the medium term uptrend the index needs to decline below 14,000. In that scenario, it can continue to trend downwards and test support in the 13,500-13,600 band. A further decline below this base can pull the index down to the subsequent support level of 13,330 and then to 13,000 over the medium term.

On the upside, a strong breakthrough of the significant hurdle at 15,000 can pave the way for an up-move to 15,200 levels. A further move beyond this level can take the index northwards to 15,500 and then to 15,600 over the medium term.

 

Sensex (49,591.3)

The key psychological resistance at 50,000 and the 21- as well as the 50-day moving averages appearedto have limited the upside for the Sensex in the past week. It has fallen 438 points or 0.88 per cent. The index continues to test the key resistances mentioned above. A strong break above 50,000-mark can bring back bullish momentum and can take the index higher to 51,000 in the short term.

We reiterate that strong rally above 51,000 levels can pave the way for an up-move to 51,400 and then to 52,000 in the coming weeks. An emphatic break-out of 52,000 is essential to reinforce the uptrend. In that case, the index can underpin the uptrend and pave way for an up-move to 53,000 and then to 54,000 over the medium term.

Conversely, if the index plunges below the key base level of 49,000, it can bring back selling interest and pull the index lower to test the March low of 48,236. Subsequent support is placed at 48,000 and a strong fall below this base will mitigate the medium term uptrend and pull the index lower to 47,000 and then to 46,000 in coming weeks.

As long as the index trades above the key support level of 45,000, the intermediate-term uptrend that began from the September 2020 low of 36,495 will remain intact. Next supports are at 44,520 and 44,000. Investors with a long-term view can remain invested with a stop-loss at 40,000.

Nifty Bank (32,448)

The Nifty Bank has slumped 1,400 points, or 4 per cent, in the past week, witnessing selling pressure. It had breached an immediate support at 33,000 and that has turned into a key resistance now. This fall has strengthened the short-term downtrend that has been in place from the February high of 37,708 levels. As long as the index trades below the key resistance level of 35,000, this downtrend will remain in place.

The index trades well below its 21- and 50-day moving averages. The daily relative strength index is on the brink of entering the bearish zone from the neutral region and the weekly RSI has slipped into the neutral region from the bullish zone. Significant long-term base for the index is at 32,000. A decisive downwards break of this support can reinforce the bearish momentum and drag the index lower to 31,000 and then to 30,000 levels in the short term.

On the other hand, an upward reversal from the immediate support level of 32,000 can take the index higher to the immediate resistance level of 33,000. A further rally above this level can lead to a corrective up-move to 34,000 levels. A conclusive breakout of the resistance in the 34,800-35,000 band is required to take the index northwards to 36,000 over the short term. Following resistances are placed at 36,500 and 37,000. The intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will stay in place as long as the index trades above 29,000 levels. The supports thereafter are at placed at 28,500 and 28,000.

Published on April 10, 2021

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