Technical Analysis

Indices can march forward

Yoganand D | Updated on January 13, 2018 Published on February 18, 2017



Amid volatility, short-term trend has been up for both indices. This can continue in future

Both the Nifty and the Sensex started the previous week on a cautious note and traded volatile. This volatility is likely to continue in the holiday-truncated expiry week. All eyes will be on the GST Council clearing the draft law for compensating States' loss and corporate actions such as TCS buyback. Rest of the corporate earnings announcements and FPI flows will also influence stock prices. Investors should keep an eye on crude oil movement which has been range-bound for over past two months and now trades at $53.7 per barrel. Breakthrough of $54 can take it higher to $56 levels.

Nifty 50 (8,821.7)

Last week, the Nifty 50 managed find support at 8,720 after an initial decline and subsequently rebounded from this level. Though the index managed to close higher for the fourth consecutive week, formation of doji candlestick pattern in the weekly chart indicates neutral stance and need for caution.

This week: Following narrow trading in the 8,700-8,800 band, the index breached the upper boundary and recorded an intra-week high of 8,896.4 on Friday. But it failed sustain its bullish momentum and threw away its gains due to profit taking and selling pressure to settle above the key resistance level of 8,800.

The indicators in the daily chart such as relative strength index and price rate of change are weakening, indicating that the near-term trend is under pressure. The index could remain volatile at around 8,800 levels. Resumption of the uptrend can take the index higher to 8,895 once again and then to 9,000 in the near future. There is an increase in weekly volume over the past three weeks.

The momentum indicators in the weekly chart feature in the positive territory implying that the medium-term trend continues to be bullish and the index can move northwards. Conclusive break above 8,600 on February 1 also opens the door for the index trending higher to a new high.

Having said that, investors should remain on alert when the index begins to trade around the 9,000 level as a short-term downward reversal can’t be ruled out from there. An emphatic upward break of 9,000 will pave way for an up-move to 9,119 or 9,172 in the coming months. Conversely, a decisive slump below 8,640 is required to negate the short-term uptrend. In that case, the index can decline to 8,521 and then to 8,366 levels.

Medium term trend: Since taking support at around 7,900 in late December 2016, the Nifty 50 index has been on a medium-term uptrend, forming higher peaks and troughs. It trades well above the 50 as well as 200-day moving averages. Strong break above 9,119 can take the index higher to 9,200 and above. A conclusive fall below 8,250 is needed to mitigate the bullish view.

Sensex (28,468.7)

The Sensex advanced 134 points or 0.47 per cent last week. It hovers well above its 50 as well as 200-day moving averages. The index currently tests a significant resistance at 28,500 levels.

Strong rally above this level can push the index higher to 28,750 and then to 29,000 or even to 30,024 in the upcoming weeks. Key supports to observe are placed at 28,150 and 28,000. Subsequent key supports are pegged at 27,500 and 27,300 levels.

But a conclusive fall below the key medium-term support level of 27,000 can revise the uptrend and drag the index down to 26,700 and 26,500 in the medium term.

Bank Nifty (20,551.3)

The Bank Nifty jumped 337 points or 1.7 per cent, breaching a key resistance at 28,370 in the previous week. The index registered a new high of 21,042.3 on Friday and started to decline. The indicators in the daily chart show signs of weakness but those in the weekly chart continue to trend upwards backing the upward momentum. Short-term outlook is bullish for the index. It currently tests a key resistance at 20,500. On resumption of the uptrend, the index can test next resistance at 21,000 in the near term.

Traders with a short-term view can hold the long positions with a stop-loss at 20,300. The medium-term uptrend will remain intact as long as the index trades above the key support level of 19,000. Immediate supports are placed at 20,150 and 20,000. Fall below the second support can bring forth near-term selling pressure and the index can decline to 19,700 and 19,500 levels thereafter.

Global cues

The US and European markets extended their rally. The Dow Jones Industrial Average rose 354 points or 1.75 per cent to close at 20,624 in the previous week and close at record high. However, the indicators in the daily as well as weekly chart feature in the overbought level and a corrective decline can’t be ruled out at this juncture. A fall below the immediate base level of 20,500 can pull the index down to 20,300 and 20,100 levels in the short-term. Continuation of the uptrend can push the index higher to 20,700 and 20,800 levels.

The Nikkei 225 index fell 144 points or 0.7 per cent last week. The index has been testing the key resistance level of 19,500 since late December 2016. Strong breakthrough is required to push the index higher to 19,700 and 20,000 levels in the short term. Key supports to note are at 19,130 and 19,000.

Published on February 18, 2017
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