Technical Analysis

Index Outlook: Will the market witness more volatility this week?

Yoganand D | Updated on April 24, 2021

Several factors, including surging Covid cases, indicate more volatility ahead

The week ago was volatile, in which the domestic equity benchmark indices, the Sensex and Nifty 50, witnessed high oscillation and the near-term stance is indecision. The market could see more volatility this week as well, given surging Covid-19 cases and the effects of a partial lockdown, Q4 earnings announcements of bluechip stocks, weakening rupee and April month derivatives expiry. Therefore, investors should tread with caution in the coming week. On the global front, Fed meeting, US Q1 GDP and OPEC meeting will be in focus.

 

Nifty 50 (14,341.3)

The volatility continued in the past week as well and the Nifty 50 fell 276 points or 1.89 per cent in the midst of choppiness. The index now tests a key support at 14,250 levels.

The week ahead: The Nifty 50 index has formed a spinning top candlestick pattern in the weekly chart, indicating near-term indecisiveness. In the past week, it largely traded in the band between 14,200 and 14,500. The index tests support at 14,200-14,250 band. It traded below the 21- and 50-day moving averages. The daily relative strength index charts downwards in the neutral region and the weekly RSI, which has entered the neutral region from the bullish zone, also displays negative divergence, implying possibility of short to medium-term trend reversal.

Also, the daily price rate of change indicator features in the negative territory, implying selling interest, and the weekly indicator is on the brink of entering the negative territory.

We reaffirm that a decisive plunge below 14,250 can bring back selling interest and drag the index down to 14,000. A downward breakthrough of this support will strengthen the downtrend that has been in place from the February high of 15,431 and drag the index down to the next key support that is in the range of 13,500-13,600. Supports thereafter are at 13,330 and 13,000 levels.

On the other hand, the index faces resistance at 14,650. A rally above this level can take the index higher to test 14,870 levels. And the next crucial barrier is at 15,000. A clear break-out of this hurdle is needed to strengthen the bullishness and pave the way for an up-move to 15,200 and 15,400 levels over short term.

Medium-term outlook: The intermediate-term trend has been up since the low formed at 10,790 in last September. As long as the index trades above the support level of 12,750, the intermediate-term uptrend will remain intact. A strong decline below this support is needed to weaken the uptrend and drag the index lower to the supports at 12,400, 12,260 and 12,000 over the medium term. The medium-term uptrend that has been in place since the December 2020 low of 13,131 levels will remain in place as long as the index trades above 14,000 levels. Only a strong fall below this level will undermine the uptrend and drag the index lower to the support in the 13,500-13,600 band. Next key medium-term support is at 13,000.

An emphatic break-out of the key resistance at 15,000 is needed to bring back bullish momentum and take the index northwards to 15,200. A rally above this resistance can take it higher to 15,500 and then to 15,600 over the medium term.

Sensex (47,878.4)

The Sensex had declined 1.95 per cent in the week ago and has also formed a spinning top candlestick pattern in the weekly chart, implying indecisiveness. Therefore, the index can continue to trade volatile for a while. It now tests support in the 47,700-48,000 range. A conclusive downward break of this base can strengthen the downtrend that commenced from the February high of 52,516. Such a break can drag the index lower to 47,000 initially and then to 46,000 over the short to medium term.

As long as the index trades above the significant support level of 45,000, the intermediate-term uptrend that started from the September 2020 low of 36,495 will remain intact. Supports below 45,000 are at 44,520 and 44,000. Conversely, the index has an immediate resistance at 48,956. An up-move beyond 49,000-mark will pave the way for a rally to test resistance, the psychological level of 50,000. Bullish momentum will be regained on a strong break-out of this barrier and the index can trend upwards to 51,000 in the short term. Vital resistances thereafter are placed at 51,400 and 52,000.

We restate that a decisive breakthrough of 52,000 is required to strengthen the uptrend and take it higher to 53,000 and then to 54,000 over the medium term. Investors with a long-term view can remain invested with a stop-loss at 40,000.

Nifty Bank (31,722.30)

Last week, the Nifty Bank index declined below the key medium-term support of 32,000. However, the index recorded an intraweek low at 30,405 and bounced up, trimming the week loss to 0.8 per cent. Going ahead, it faces a key near-term resistance at 32,000 and 32,330 levels. A strong rally above these resistances can take the index higher to 33,000 levels. A strong breakthrough of 33,000 is needed to extend the corrective rally higher to 34,000 over the near term. As the index is volatile and the April month derivative expiry is ahead, traders should remain cautious this week.

On the downside, a fall below the current support level of 31,000 can bring back selling pressure and pull the index down to 30,000 levels in the short term. Next supports are pegged at 29,000 and 28,000 levels.

The index needs to strongly move beyond 34,000-mark to alter the short-term downtrend in place since the February high of 37,708.7. Such a breakthrough can take it northwards to 34,800-35,000. Next resistance is at 36,000; 36,500 and 37,000. We reiterate that the intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will prevail as long as the index trades above 29,000. The supports thereafter are at 28,500 and 28,000.

Published on April 24, 2021

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