Technical Analysis

Index Outlook: Will resistance cap the upside in Sensex, Nifty 50?

Gurumurthy K |BL Research Bureau | Updated on: Jun 04, 2022

The broader trend is down and any further rise from here may not sustain

The Indian benchmark indices witnessed some wild swings last week. Both Sensex and Nifty 50 saw a strong bounce initially, then fell sharply giving back all the gains and then again rose sharply on Friday to close the week on a positive note. Sensex was up 2.9 per cent and Nifty 3.07 per cent for the week.

 However, this wild oscillation happened within a range. Sensex moved up and down between 52,630 and 54,860, while 15,730-16,400 has been the range for the Nifty.

Among the sectors, the BSE Metal index outperformed others by surging 7.3 per cent. It was followed by the BSE Capital Goods, up 5.34 per cent for the week. The BSE IT index underperformed and fell 2.2 per cent.

The Foreign Portfolio Investors (FPIs) continue to sell Indian equities. They pulled out money from the equity segment for the seventh consecutive week. Last week, the equity segment saw an outflow of $1.279 billion. For May, the FPIs have pulled out $4.55 billion from the Indian equity segment so far.

Nifty (16,266.15)

The support at 15,700 is holding well. Nifty broke the resistance at 16,380, but did not sustain. It made a high of 16,399 and had come-off sharply from there. Broadly, the index has been range bound between 15,730 and 16,400 over the last two weeks. Within this range, it has closed the week at 16,266, up 3.07 per cent.

The week ahead: Immediate support below 15,730 is at 15,700. So broadly 15,700-16,400 can be considered as the trading range. A breakout on either side of this range will determine the next move.

A break above 16,400 can take the Nifty up to the next resistance at 16,554 – the 21-Day Moving Average (DMA). A further break above 16,554 can see an extended rise to 16,680 – the next important trend resistance seen on the daily chart. A rally beyond 16,680 is less likely. The upside can be capped either at 16,554 itself or at 16,680 in the short term in case of a break above 16,400.

On the other hand, if Nifty breaks the range below 15,700, it can dip initially to 15,530 – the 21-Month Moving Average. A further break below 15,530 can drag it to 15,135 or 14,885 in the short term.

Trading strategy: The stop-loss at 16,140 placed on the short positions recommended last week has been hit. Traders can stay out of the market for now. Go short on a break below 15,700. Keep the stop-loss at 15,790. Trail the stop-loss down to 15,660 as soon as the index falls to 15,610. Move the stop-loss further down to 15,590 as soon as the index touches 15,560. Book profits at 15,540.

Medium-term outlook: The levels 15,135 and 14,885 are important support to watch now. A strong bounce from either of these supports can take the Nifty up to 15,700 and even 16,000 or higher. But that will just be a corrective bounce. The broader trend will remain down. We expect Nifty to target 14,500-13,500 in the coming months. We reiterate that the fall to 14,500-13,500 will be a good buying opportunity from a long-term perspective.

Trading strategy: Positional traders can continue to hold the short positions taken at 17,171. Retain the stop-loss at 16,900. Move the stop-loss down to 16,100 as soon as the index touches 15,600 on the downside. Book profits at 15,100.

Sensex (54,326.39)

Sensex has been stuck in between 52,630 and 54,860 over the last couple of weeks. Within this range, the index has closed the week at 54,326, up 2.9 per cent.

The week ahead: The 52,630-54.860 range remains intact for now. A breakout on either side of this range will give a clear cue on the next move.

If Sensex manages to breach 54,860, it can rise to 55,280 or 55,320. The region between 55,280 and 55,320 is a strong resistance zone and the upside can be capped here. A rise beyond 55,320 looks less probable at the moment. A strong trigger might be needed to break above it.

On the other hand, if Sensex breaks the current range below 52,630, which is more likely to happen, it can test 52,350 and then 52,180 initially. A further break blow 52,180 can drag it down to 50,750 and 50,400 over the short term.

Medium-term outlook: The support around 50,400 may hold on its first test. A corrective bounce from there to 53,500 is a possibility. However, the broader trend will continue to remain down. We can expect the Sensex to break 50,400 and fall below 50,000 targeting 49,000-48,000 on the downside in the coming months. As mentioned last week, the 49,000-48,000 region is a strong support that can halt the current fall. A fresh bounce from here will indicate the beginning of a new leg of a long-term rally. So, from a long-term perspective, the fall to 49,000-48,000 will be a good long-term buying opportunity.

What to watch
Support at 15,700 on Nifty
Support at 52,350 on Sensex
Support at 33,000 on Nifty Bank

Nifty Bank (34,276.40)

The Nifty Bank index has been stuck in a range of 33,000-34,800 over the last two weeks. The index closed just below upper end of the range at 34,276.4, up 3.49 per cent for the week.

Chart Source: MetaStock

Chart Source: MetaStock

Above 34,800, another important resistance is at 35,000. The 21-Day Moving Average and a trendline are both poised around 35,000. This makes it a very strong resistance and a break above it might not be very easy. As such, we can expect the Nifty Bank index to trade below 35,000 and break below 33,000 eventually, going forward. Such a break can take the index initially to 32,628 – the 100-Week Moving Average support. A further break below 32,628 can drag the Nifty Bank index down to 31,840 in the short term.

In case the Nifty Bank index manages to breach 35,000 from here, a rise to 36,000 or 36,500 can be seen.

Trading strategy: The stop-loss at 34,300 for the short positions recommended last week has been hit. Traders can go short again now and at 34,700. Keep the stop-loss at 35,350. Trail the stop-loss down to 33,800 as soon as the index falls to 33,200. Move the stop-loss down to 33,100 as soon as the index touches 32,900 on the downside. Book profits at 32,750.

Global cues

The fall in the US equity indices continues. The Dow Jones Industrial Average (31,261.90, down 2.9 per cent) fell for the eighth consecutive week.

Important support for the week is at 30,300 and 30,150. A break below 30,150 can take the Dow down to 29,800 in the near term.

Resistance is at 31,750. Above that, 32,800-33,000 will continue to be the strong resistance zone that can cap the upside over the medium term. As long as the Dow remains below 33,000, we retain our bearish view of seeing 29,000 on the downside.

Published on May 21, 2022
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