Technical Analysis

Index outlook: Indices are on a strong footing

Yoganand D | Updated on October 20, 2019 Published on October 19, 2019

A view of the Bombay Stock Exchange building. File photo

The Sensex and the Nifty advanced 3% last week on good buying support

Both the Sensex and the Nifty prolonged their up-move amid minor volatility last week. The bellwether indices were boosted by buying interest and short-covering ahead of a long weekend. The key equity indices gained over 3 per cent. Flat crude oil price and gold rate enthused equity investors. The stock exchanges are closed on October 21 on account of the Maharashtra polls. Strong Q2 results from the bluechip companies can keep the bullish momentum intact in the coming week. Also, the possibility of a pre-Muhurat rally cannot be ruled out.

On the global side, apart from the US-China trade talks, Brexit vote, crude oil inventories, Eurozone PMIs and ECB meet are some of the key events to keep track.

Nifty 50 (11,661.8)

The Nifty gained 356 points or 3.16 per cent last week on the back of buying interest witnessed in the past two trading sessions. The index has once again managed to decisively breach the 200-day moving average and the key resistance at 11,500. It hovers well above the 50- and 200-day moving averages. The recent break above the key barrier has strengthened the short term uptrend that started in mid-September at a low of 10,670. The daily relative strength index has entered the bullish zone from the neutral region, backing the uptrend and the weekly RSI is likely to enter the bullish zone.

Moreover, both the daily as well as the weekly price rate of change indicators are featuring in the positive terrain implying buying interest. Now, the Nifty faces a resistance ahead at 11,700. A conclusive break above this level will take the index northwards and test succeeding resistances at 11,800 and 12,000 levels over the short term.

But inability to move beyond 11,700 can lead to a pause on back of profit-booking and the index can move sideways. The near-term support at 11,500 and 11,300 can cushion the index. As long as the index trades above the vital base level of 11,100, the short-term uptrend will be intact. A decline below this, will test the psychological base at 11,000. Next supports to note are at 10,800 and 10,700 levels.

Medium-term trend:

Last week’s strong rally above the key medium-term trend-deciding level of 11,500 has altered the medium-term downtrend that had been in place from the new high registered at 12,103 in early June this year. Now, the index has potential to trend upwards to the next decisive resistance at 11,800 and 12,000, psychological levels. A further rally beyond these levels can take it northwards to 12,100 and then to 12,200 in the medium term.

Conversely, the significant support at 11,300 can provide base for the index. Only a plunge below the key medium-term support at 11,000 will bring back bearish momentum and drag the index down to 10,700 and 10,600 over the medium term horizon.

Sensex (39,298.3)

Last week, the Sensex continued the uptrend and surged 1,171 points or 3 per cent amid volatility. It has surpassed a key resistance at 39,000. This rally has altered the medium-term downtrend and has underpinned the bullish momentum. The Sensex faces a resistance at 39,400. An emphatic break above the level can take the index higher to 40,000-mark, beyond which it can record new highs in the medium term. Investors with a medium-term horizon can stay invested with a stop-loss at 36,400 levels.

On the other hand, any corrective decline from current level on the back of profit-taking can find support at 38,500 and then at 38,000 levels. Only a strong tumble below 37,500 will be a threat to the short-term uptrend and drag the index down to 37,000 and 36,600 levels in the short term.

 

Nifty Bank (29,120.2)

Extending the up-move, the Nifty Bank jumped 1,077 point or 3.8 per cent in the past week. Though it was able to close above the 200-day moving average, it tests a crucial resistance at 29,000. A strong break above this level will reinforce the bullish momentum and push the index northwards to 29,500 and then to 30,000 in the near term.

Traders with a short-term view can stay watchful and take fresh long positions on a strong break above 29,000 levels with a fixed stop-loss. The daily and the weekly relative strength indices continue to feature in the neutral region with a positive bias. Also, both the daily and the weekly price rate of change indicators are hovering in the negative territory hence traders should tread with caution in the coming truncated week.

A failure to move beyond 29,000 levels on strong note can drag the index down and it can remain on a sideways trajectory between 27,500 and 29,000 for a while. Immediate supports are at 28,500 and 28,000. A conclusive fall below 27,500 will pave way for a decline to 27,000 and 26,500 over the medium term.

Global cues

In the previous week, the Dow Jones Industrial Average was choppy and a significant resistance at 27,000 limited the upside. The index finished the week marginally in the red, declining 46 points or 0.17 per cent to close at 26,770.2. A slump below the immediate support level at 26,600 can drag the index down to 26,300 and then to 26,000 level. On the upside, a break-out of 27,000 can accelerate the index higher to 27,300 and 27,500 levels in the short term.

Published on October 19, 2019
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