Technical Analysis

Indices bring cheer ahead of Diwali

Yoganand D | Updated on November 03, 2018 Published on November 03, 2018

File Photo of the Federal Reserve building in Washington, DC, US.   -  Reuters

Investors should, however, tread with caution in the truncated week

The bullish global cues, coupled with the appreciating rupee and fall in crude oil price, have cheered the bulls and lifted the sentiment for the domestic equity market. The Nifty as well as the Sensex surged 5 per cent each last week, due to upbeat global factors and value-buying at lower levels.

The beaten-down, auto and health care sectors witnessed strong gains alongside other sectoral indices. Mid- as well as small-cap stocks also surged, indicating a broad-based rally.





In the coming week, the rupee movement and global cues are vital. Further rupee appreciation could cushion the domestic market. On the global front, US mid-term elections and Fed meeting could provide direction. But being a truncated week, investors should tread with caution and consider selective buying.

Nifty (10,553)

Taking support at around the 10,000-mark, the Nifty 50 zoomed 523 points or 5.2 per cent last week, breaching key resistances at 10,300 and 10,500 levels.

Short-term trend: Since registering a new high at 11,760 in late August this year, the Nifty has been in a short-term downtrend. However, the index found support at 10,000 recently and changed direction, triggered by positive divergence in the daily relative strength index and price rate of change. The index has also surpassed its 21-day moving average.

There has been an increase in volume over the last eight trading sessions. These are the initial signs of trend-reversal emerging in the previous week, backed by positive global cues.

The index breached its immediate resistance at 10,300 and accelerated the up-move to 10,400 and 10,500 levels last week. Both the daily and weekly relative strength indices feature in the neutral region.

The daily price rate of change indicators have entered the positive territory, implying emergence of buying interest. Going forward, the index could face hurdles ahead at the crucial trend-deciding resistances —10,700 and 10,800.

A decisive breakthrough of 10,800 is needed to alter the short-term downtrend and take the index higher to 11,000 and 11,100 levels over the short to medium term.

Investors with a medium-term perspective can make use of dips to buy with a stop-loss at 9,950 levels. That said, if the index fails to move beyond 10,700, it can fall to 10,400. A plunge below 10,400 can pull the index down to 10,200 and 10,100 levels, which can provide base. Subsequent supports are at 10,000 and 9,800 or 9,700.

Medium-term trend: There is no clear medium-term trend for the index. A strong tumble below the key psychological support level of 10,000 and the next support at 9,900 will strengthen the downtrend.

Such a decline can pull the index down to 9,700 and 9,500 levels over the medium term. In such a scenario, the medium-term trend will be down for the index. Next key supports are at 9,200 and 9,000. On the upside, a conclusive breakthrough of 11,000 is required to alter the downtrend and take the index northwards to 11,300 and 11,500 over the medium term.

Sensex (35,011.6)

After halting the downtrend at around 33,290 recently, the Sensex reversed direction. It zoomed 1,662 points or almost 5 per cent in the previous week.

This rally has breached key resistance at 34,000. The index is in a corrective up-move. But the index now tests resistance at 35,000. To alter the short-term downtrend, a strong break above 36,500 is required.

Such an up-move can push the index up to 37,000 and then to 37,400 in the medium term. Before 36,500, the index could encounter resistance at 35,500 and then in the 35,800-36,000 band on a decisive rally above 35,000 levels.

On the downside, if the index falls below the immediate support level of 34,400, it can extend the decline to 34,000 levels. Next vital supports below 34,000 are placed at 33,800 and 33,400 levels.

Nifty Bank (25,701.6)

The Nifty Bank index jumped 1,280 points or 5.2 per cent last week, after taking support at 24,500. While trending up, it surpassed key barriers at 25,000 and 25,500 levels. Near-term trend is up for the index. Continuation of the up-move can encounter resistance ahead at 26,000 levels.

An emphatic breakthrough of 26,000 will strengthen the uptrend and take the index northwards to 26,500 in the truncated week ahead. The next targets above 26,500 are at 27,000 and 27,500 levels.

But failure to move beyond 26,000 will keep in the index wavering sideways in the 25,500-26,000 range.

Conversely, a plunge below the immediate vital support at 25,500 will bring back selling pressure and drag the index down to 25,000 levels. Next key support is pegged at 24,500. Traders with a near-term view should tread with caution and consider taking long positions on a strong rally above 26,000 with a fixed stop-loss.

Global cues

Amid volatility, the Dow Jones Industrial Average gained 582 points or 2.4 per cent to close at 25,270 last week. The index tests resistance at 25,500.

A break above this barrier will pave way for an up-move to 25,800 and 26,000 in the short term. Key resistances above 26,000 are at 26,200 and 26,400 levels.

On the other hand, a fall below the immediate support at 25,000 will reinforce the bearish momentum and drag the index down to 24,700 and 24,400 levels in the short term.

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Published on November 03, 2018
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