Technical Analysis

Index Outlook: Will Nifty rebound this week?

Yoganand D BL Research Bureau | Updated on June 19, 2021

As the benchmark indices await clear direction, tread with caution

Both the bellwether indices, the Sensex and the Nifty 50, witnessed a highly volatile movement marked by selling pressure at higher levels and buying interest at lower levels.

The ensuing June month derivatives expiry week is crucial to determine the short-term trend.

Other factors such as a weakening rupee against the greenback, which is rising, and increasing crude oil price need a close watch.

The Fed action will continue to dominate the US market in the coming week as well as the global markets.

 

Nifty 50 (15,683.3)

It was another volatile week for the Nifty 50 in which the index advanced initially to mark a new high at 15,901, but fell short of touching 16,000-mark and declined to record an intraweek low at 15,450 before closing at 15,683 levels. The index has fallen 116 points or 0.7 per cent in the past week.

The week ahead: Last week, the index tested the key resistance at 15,800 and registered a record high at 15,901 and slumped, which was triggered by negative divergence on the daily relative strength index. On the downside, the key support at around 15,500 cushioned the index. The week ahead is crucial for the index and the near-term trend will be decided according to the movement.

An emphatic downward breakthrough of the vital base at 15,500 will confirm short-term trend reversal and the index can witness a corrective decline to 15,300.

If this base provides support, the index can witness a sideways movement in the wide band between 15,300 and 16,000 for some time.

The next support below 15,300 is placed at 15,000. As long as the index trades above 14,800 levels, the short-term uptrend that has been in place since the late April low recorded at 14,151 will be in place.

We reiterate that an emphatic plunge below 15,000 will start weakening the uptrend.

A decisive fall below 14,800 will alter the uptrend and pull the index down to the subsequent supports placed at 14,500 and then at 14,200. Next supports are at 14,000 and the 13,500-13,600 zone.

On the upside, if the index decisively breaks above the immediate resistance at 15,800, this will underpin the bullish momentum and take it northwards to 16,000 and then to 16,200 levels. The crucial hurdle thereafter is at 16,500 levels.

Medium-term outlook: The volatility in the past week shows that both the intermediate and the medium-term uptrends are likely to witness a pause or a sideways movement that could provide next direction for the index. It has been in a medium-term uptrend since the December 2020 low of 13,131.

As long as the index trades above the dynamic support of 14,000 levels, the medium-term uptrend remains intact. In case of corrective decline, the index can find supports at 15,500 and 15,000.

A decisive downward break of 14,000 will alter the uptrend and pull the index down to the 13,500-13,600 band and then to 13,000 levels over the medium term.

On the other hand, a strong breakthrough of the resistance at 16,000 will reinforce the bullish momentum and take the index northwards to 16,500 over the medium term.

Sensex (52,344.45)

The Sensex was choppy in the past week and has formed a spinning top candlestick pattern on the weekly chart, implying indecisiveness.

After recording a new high at 52,869, it pared the intraweek gains and has fallen 130 points or 0.25 per cent in the previous week. The index continues to test resistance at around 52,500.

A clear break above the barrier at 52,500 will strengthen the uptrend and take it northwards to 52,800 and then to 53,000.

A further break above this vital barrier will underpin the uptrend and accelerate the index upwards to 54,000 over the short to medium term horizon.

Conversely, if the index tumbles below the immediate support level of 52,000, this will start weakening the short-term uptrend and pull the index lower to 51,400 initially and then to 51,000 levels over the short term.

We reaffirm that as long as the index trades above the key support level of 50,000, the short-term uptrend that began from the April low at around 47,204 will remain in place.

A downward breakthrough of 50,000 will start threatening the short-term uptrend and drag the index down to the next support levels at 49,000 and then to the 47,700-48,000 band. Investors with a long-term perspective can hold long positions with a long-term stop-loss at 41,000.

Nifty Bank (34,558)

The Nifty Bank extended the decline and tumbled 489 points or 1.4 per cent in the past week. Nevertheless, the index is finding base at around 34,000 levels. As long as it trades above 34,000, the short-term uptrend that has been in place from this April low won’t be under threat.

But a strong fall below 34,000 level will start weakening the uptrend and pull the index down to 33,500 and 33,000 levels.

A downward break of the support at 33,000 will intensify the selling pressure and pull the index down to 32,000 or even to 31,000 levels in the medium term.

On the upside, an emphatic breakthrough of the immediate resistance at 35,000 will strengthen the uptrend and take the index higher to 35,500 and then to 36,000 in the ensuing weeks. Next crucial resistance is at 36,500 levels.

Traders can consider taking fresh long positions on a strong rally above 35,000 levels with a fixed stop-loss.

Published on June 19, 2021

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