Technical Analysis

Indices at the crossroads again

Yoganand D | Updated on June 10, 2018 Published on June 10, 2018

After bouncing back last week, the Sensex and the Nifty could turn volatile

Following an initial slump, the Nifty and the Sensex managed to bounce back strongly, taking cues from the positive global markets. The RBI's repo rate hike by 25 basis points to 6.25 per cent in the recent monetary policy meeting appears to have been discounted by the markets.

The upcoming macro-economic data such as the index of industrial production (IIP) and wholesale price index (WPI) will be in focus for the domestic investors, along with the progress of the monsoon.

Globally, the US and North Korea summit, the Fed meeting, ECB rate decision and the BoJ rate decision could keep global investors on the edge in the coming week. Both the Nifty and the Sensex could also turn volatile, in tandem with their global peers.

Nifty 50 (10,767.6)

After an initial decline, the Nifty index took support at 10,550 and rebounded sturdily. The index advanced 0.67 per cent last week and managed to close above 10,700 levels.

Short-term trend: Since taking support at around 10,000 this March, the index has been in a short-term uptrend. Although the index managed to hold above 10,700, it tests next key resistance at 10,800 levels. The Nifty trades well above its 21 and 50-day moving averages.

However, the index continues to trade at the key resistance area in the zone between 10,700 and 10,800. We reiterate that an emphatic breakthrough of this resistance zone is required to reinforce the bullish drive. Such a break can take the index up to 11,000 initially and then to 11,150 over the short term. But if it struggles to move past the aforesaid resistance zone, a decline below the key support level of 10,550 will weaken the uptrend. Subsequent support at 10,420 and 10,350 could be tested in the short term.

As long as the index trades above 10,350 levels, the short-term uptrend will remain in place. A strong decline below this level will mar the uptrend and drag the index lower to 10,250 and then to 10,100. Next supports are placed at 10,000, 9,700 and 9,500 levels.

The indicators and oscillators feature in the neutral region. Traders with a short-term horizon can go long on strong rally above 10,800 with a fixed stop-loss.

Medium-term trend: Amid volatility, the index inched higher in the previous week. But, then again, it continues to test the significant trend-deciding resistance at around 10,700. We re-affirm that a conclusive rally beyond this level is vital to change the downtrend that has been in place since this January high of 11,171.

In that scenario, the index can move northwards to 11,000 and 11,200 levels in the medium term. Conversely, a fall below the key support level of 10,400 will strengthen the downtrend and pull the index lower to 10,200 and 10,000 in the medium term.

Sensex (35,443.6)

After taking support at 34,800, the Sensex reversed higher last week, gaining 216 points or 0.6 per cent.

Once again, the index managed to close above 35,000 levels. But it tests next hurdle at 35,500. A decisive up-move beyond this level is needed to strengthen the uptrend and push the index higher to 35,800-36,000 range in the short term.

Nevertheless, a slump below the immediate support level of 35,000 can pull the index down to 34,800 and then to 34,500 levels. Subsequent supports are placed at 34,600 and 34,300 levels.

Medium-term trend: The index continues to waver around the 35,000-mark. A move beyond 35,500 can take it northwards to 35,800 and 36,000 initially.

A conclusive break above 36,000 will reinforce the bullishness and take the index to 36,200 and 36,400 levels. On the other hand, a tumble below the crucial support level of 34,000 can pull it down to 33,400. Next supports to note are at 33,000 and 32,500.

Nifty Bank (26,451.3)

The significant resistance at 27,000 capped the upside in the Bank Nifty last week. Testing this barrier, the index fell 241 points or 0.9 per cent, under-performing the bellwether indices.

The index has formed a dark cloud cover candlestick pattern in the weekly chart, which is a bearish reversal pattern. The indicators and oscillators in the daily chart show signs of weakness.

An immediate support in the 26,000-26,100 range can provide base for the index. That said, if it breaches this base level conclusively, the down-move can extend to the next key support in the 25,500-25,600 range.

A downward break of this base range will be a threat to the up-trend that has been in place from the March low of 23,605. In that case, the index can decline to 25,000 and then to 24,500 levels in the medium term.

On the upside, key immediate resistances at 26,750 and 27,000 can limit the index. But an emphatic break-out of 27,000 will pave way for an up-move to 27,500 and then to 28,000 in the short to medium term.

Traders with a short-term perspective can consider taking short positions if the index fails to move beyond 26,750 levels with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average has jumped 2.7 per cent, breaking the key resistance in the 24,800-25,000 zone last week, to close at 25,316.

The up-move can continue in the short term and the index can test resistance at 25,500 and then at 25,700 levels. Key supports are 25,000 and 24,800, that can provide base for the index in the ensuing week.

Published on June 10, 2018
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