Technical Analysis

Index Outlook: Will Sensex, Nifty 50 break through the resistance?

Gurumurthy K BL Research Bureau | Updated on November 06, 2021

Inability to breach the hurdle can trigger a fresh fall for the indices

The Indian benchmark indices recovered ahead of the long Diwali weekend as expected. Both Sensex and Nifty 50 bounced back to test a high of 60,421.14 and 18,012.25 on Tuesday and fell back thereafter. Nifty has closed at 17,916.8, up 1.39 per cent for the week. Sensex was up 1.28 per cent and has closed the week at 60,067.62.

All the major sectoral indices also rose back to close in the green last week. The BSE Realty Index surged the most by 9.53 per cent. The BSE Capital Goods index was up over 5 per cent.

The overall picture continues to look weak. As mentioned in this column last week, there could be chances for a fresh fall from here in the coming weeks.

Foreign money flows

Foreign Portfolio Investors (FPIs) continue to remain net sellers of Indian equity. They sold $612 million in the equity segment last week. The FPIs have sold about $2.45 billion in the last three weeks. If the sell-off from the FPIs intensifies in the coming weeks, then the Sensex and Nifty will remain under pressure to see a further fall from here.

 

Nifty 50 (17,916.8)

The first resistance level of 18,000 mentioned last week has held very well. The turnaround has also happened in line with our expectation. This could keep the index under pressure and vulnerable for a fresh fall, going ahead.

The week ahead: The region between 18,000 and 18,200 will continue to act as a strong near-term resistance. As long as the index stays below this resistance zone, the short-term outlook will remain negative. A test of 17,600-17,500 can be seen this week again. If Nifty continues to sustain above 17,500, it can consolidate in the range of 17,500-18,000 or 17,500-18,200 for some time. Then the breakout on either side of this range will determine the next leg of move.

Nifty has to break above 18,200 to ease the downside pressure. Such a break will then pave the way for a revisit of 18,400-18,500 levels. But that looks less probable.

Medium-term outlook: As mentioned last week, the bias is turning bearish on the charts. As such the chances are high for the Nifty to break below 17,500 in the coming days. Such a break will trigger a steeper fall to 17,250 and even 17,000-16,850 in the coming weeks. The region between 17,000 and 16,850 is a crucial support zone. A strong bounce-back from this support zone will keep the medium-term uptrend intact. On the other hand, a strong break below 16,850 will indicate a trend reversal and drag the Nifty down to 16,300-16,000 and even lower. As such the price action in the 17,000-16,850 region will need a close watch.

Sensex (60,067.62)

As expected, Sensex remained well within the 59,000-61,000 range in the past week. The index rose to a high of 60,421.14 and gave back some of the gains to close the week at 60,067.62, up 1.28 per cent.

The week ahead: A fall below 60,000 can increase the downside pressure on the Sensex. In that case the index can fall to 59,000 and will remain vulnerable to break below it. If Sensex manages to sustain above 59,000 it can consolidate in the range of 59,000-61,000 for some time.

A strong rise past 61,000 is needed to turn the sentiment bullish. Such a break will pave the way for a fresh rise to 62,500-63,000, going forward.

Medium-term outlook: As mentioned last week, a break below 59,000 will trigger a steeper correction within the medium-term uptrend. Such a break can drag the Sensex down to 57,000. We reiterate that the uptrend will come under threat only on a break below 57,000. In that case the Sensex can see a further fall to 56,000-55,000, going forward. The price action around 57,000 will need a close watch.

Nifty Bank (39,573.7)

The Nifty Bank index recovered last week after having fallen sharply in the week earlier. The index rose to a high of 40,160 and fell back sharply from there to close at 39,573.7, up 1.17 per cent for the week. The resistance in the 40,000-40,200 region has held very well as expected. This keeps the overall bearish outlook intact.

The Nifty Bank index is now vulnerable to break 39,000 and fall to 38,700-38,600 this week. A further break below 38,600 will see the fall extending towards 38,000 and even 37,700-37,500 eventually in the coming weeks. A decisive rise past 40,200 is needed to turn the outlook bullish to revisit 41,000 levels.

Traders who have taken short positions last week at 39,350 and 40,000 as advised can hold on to the position. Retain the stop-loss at 40,400. Book partial profits, say, for 30 per cent of the holdings at 38,450. Then trail stop-loss down to 39,150 for the rest of the positions. Move the stop-loss further down to 38,600 as soon as the market moves down to 38,100. Exit the rest of the positions at 37,950.

Global cues

The Dow Jones Industrial Average (36,327.95) surged, breaking above the 36,000-36,200 resistance zone last week. Strong job numbers released on Friday triggered a rise past 36,000. The index has closed on a strong note for the week and was up 1.42 per cent. The outlook will be bullish as long as the Dow sustains above 36,000. It can now target 37,000 on the upside. Will the rise in the Dow help the Sensex and Nifty to stay afloat? We will have to wait and watch.

The rise to 37,000 on the Dow will get negated only on a decline below 36,000. In such a scenario, a pull-back move to 35,000 is possible.

Published on November 06, 2021

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