Technical Analysis

Index Outlook: Will Sensex and Nifty 50 sustain the bounce?

Gurumurthy K BL Research Bureau | Updated on November 13, 2021

A strong follow-through rise above the near-term resistances is needed to negate a fall-back

The Indian benchmark indices managed to close in the green for the second consecutive week. Although they remained vulnerable for most part of the week, a good bounce-back from their lows towards the end of the week has eased the downside pressure slightly. Sensex rose back from the low of 59,656.26 while Nifty 50 reversed higher from around 17,800. Both the indices have closed over a per cent for the week. Sensex has closed at 60,686.69 and Nifty at 18,102.75

Among the sectors, many closed in the green while some were in the red for the week. The BSE Oil and Gas, BSE Capital Good and BSE Power indices were outperformers last week and were up over 3 per cent each. The BSE Bankex index fell the most by over 2 per cent. The BSE Metals and BSE Realty indices were down over 1 per cent last week.

The coming week is going to be crucial. It will be important to see if the Sensex and Nifty manage to sustain the bounce and get a strong follow-through buying. Key resistances are coming up for both the indices, which will be crucial to watch. Sensex and Nifty will have to break above their upcoming resistance to bring back the bullishness again.

Nifty 50 (18,102.75)

The fall to 17,600-17,500 that was expected last week did not happen. Instead, the Nifty 50 index found support at 17,800 itself and has bounced back into the 18,000-18,200 resistance zone. Nifty has closed at 18,102.75, up 1.04 per cent for the week.

The week ahead: On the daily chart, the bounce from 17,800 and strong close above 18,000 have eased the downside pressure. As such, the test of 17,600-17,500 mentioned last week may not happen now. However, it is not completely negated. If the index manages to sustain above 18,000, there is room for a further rise to 18,350 this week. It is important to see in the coming days whether Nifty can break above 18,350 or not. If Nifty falls back below 18,000, it can test 17,800 again. A strong break below 17,800 is needed to bring back the chances of seeing 17,600-17,500 on the downside.

Medium-term outlook: The level of 18,350 will be crucial to watch, going forward. A decisive break above 18,350 will bring back the bullishness into the picture. Such a break will then pave the way for a fresh rise to 18,500-18,600, going forward. It will also invalidate the danger of seeing 17,000 on the downside that we have been cautioning about over the last few weeks.

On the other hand, if Nifty reverses lower from 18,350, it can come down to 18,000 again. It will then keep the danger of seeing the deeper correction to 17,500-17,000 within the overall uptrend.

Sensex (60,686.69)

Sensex broke below 60,000 last week as expected but did not get a strong follow-through selling. The index made a low of 59,656.26 but recovered well from there. It has closed the week at 60,686.69, up 1.03 per cent.

The week ahead: Immediate resistance for the Sensex is at 61,000. It is important to see if the index manages to rise past this hurdle or not this week. Such a break will pave the way for a further rise to 61,500-62,500 in the short term. On the other hand, if Sensex fails to break 61,000, it can consolidate in a narrow range of 60,000-61,000 for some time. It will also keep the chances alive of seeing a break below 60,000 and a fall to 59,000.

 

Medium-term outlook: The break and rise above 61,000 towards 62,000 mentioned above will ease the downside pressure. In that scenario, the danger of seeing a break below 59,000 and a steeper corrective fall to 57,000 levels that we have been talking about will get reduced. So, a strong and a sustained break above 61,000 will increase the chances of seeing 63,000 on the upside in the coming weeks. If the Sensex fails to break above 61,000 and falls below 60,000 again, it will test 59,000 on the downside initially. In such a scenario, the chances of breaking below 59,000 and seeing 57,000 on the downside will remain alive.

Nifty Bank (38,733.35)

The Nifty Bank came down further last week. This keeps our overall bearish view intact. The index broke below 39,000 as expected and fell 840 points last week. It has closed at 38,733.35 and is down 2.12 per cent.

The Nifty Bank index extended the fall well beyond our expected level of 38,600 last week. It made a low of 38,350 and has bounced back slightly from there. Near-term support is at 38,000-37,950. This might hold on its first test. However, a strong rise past 39,000, though less probable, will be needed to negate the danger of seeing a steeper fall breaking below 38,000-37,950. If the index manages to sustain above 38,000, a sideways consolidation between 38,000 and 39,000 or 38,000 and 39,500 is possible for some time.

The bias will continue to remain bearish. As such, an eventual break below 37,950 can drag the Nifty Bank index down to 37,700-37,500 going forward.

Traders can continue to hold the short positions taken at an average of 39,675. Last week we had suggested to exit 30 per cent of the holding at 38,450 and move the stop-loss down to 39,150 for the rest. Move the stop-loss for the balance holding to 38,650 when the index moves down to 38,150. Move the stop-loss further down to 38,400 as soon as the index touches 38,050. Exit the remaining short positions at 37,950.

Global cues

The Dow Jones Industrial Average (36,100.31) rose to a high of 36,565 in the initial part of last week. However, it failed to sustain higher and fell, giving back all the gains made during the week. It indeed broke below the key support level of 36,000 and made a low of 35,915 before recovering back on Friday. The index has closed at 36,100.31 and is down 0.63 per cent for the week.

The Dow will now have to rise past 36,250 decisively to keep the chances alive of seeing 37,000 on the upside that we had mentioned last week. Inability to break above 36,250 from here can keep the index under pressure to break below 36,000 again. Such a break can then drag the Dow down to 35,500 and even 35,000 in the short term.

Published on November 13, 2021

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