Technical Analysis

Indices can remain choppy

Yoganand D | Updated on January 09, 2018 Published on August 26, 2017



A corrective rally is in progress. However, the trend can reverse from higher levels

Domestic indices were volatile and ended the truncated week on a marginally positive note. The stock of IT major Infosys that plummeted on the resignation Vishal Sikka, gained some lost ground on news of former CEO Nandan Nilekani joining the board. The stock could rally this week, as Nilekani returns to Infosys as non-executive Chairman. Global markets remained subdued last week. In the coming week, the investors should tread with caution ahead of the August month derivatives expiry on Thursday and auto sales numbers on Friday.

Nifty 50 (9,857)

After a sharp fall last Monday, the Nifty 50 index managed to stage a recovery and closed the truncated week on a marginally positive note, climbing 19 points or 0.2 per cent. This up-move was backed by good gains in healthcare and banking sector indices. Auto and IT indices continued to trend downwards in the previous week.

Short-term trend: Over last two weeks, the Nifty index has been in a sideways move in the wide range between 9,700 and 9,950. The index faces a key resistance ahead at 9,900 and the next significant resistance is at 10,000. It can encounter resistances at 9,900 and 10,000 levels going ahead. Failure to surpass these hurdles can drag the contract down, which can find supports at 9,800 and 9,700 levels. Conclusive slump below the key support level of 9,700 can strengthen the bearish momentum and drag the index down to 9,500 in the short term.

Investors with a short-term horizon should continue to tread with caution this week as the August month derivative expiry can cause volatility. Traders should desist from taking fresh long positions until the index strongly breaches above 10,000 levels.

Decisive strong up-move beyond 10,000 can bring back bullish momentum and take the index higher to 10,100 and 10,200 levels in the coming weeks.

Medium-term trend: The corrective up-move is currently in progress for the index. It could remain in a sideways band between 9,700 and 10,000 in the medium term. The indicators in the weekly chart continue to show signs of weakness. We reiterate that investors with a low-risk appetite can consider taking partial profits off the table during this corrective up-move.

An emphatic breakthrough of 10,000 can reinforce the medium-term bullish momentum and push the index higher to 10,200, 10,854 and 11,360 in the coming months. On the other hand, if the index conclusively falls below 9,500, then the medium-term uptrend could start weakening and drag the index lower. In such a scenario, the index can decline to 9,300 and 9,120 in the medium term. But if the significant support at 9,500 provides cushion for the index, it can consolidate in the band between 9,500 and 10,000.

Nifty Bank (24,274.2)

Last week, the Bank Nifty advanced almost 200 points or 0.8 per cent amidst volatility, triggered by short-covering. After testing the key support as well as the 50-day moving average at 24,000, the index has marginally moved higher.

However, it now faces a significant resistance as well as 21-day moving average ahead at 24,500 levels. Strong break above this resistance is required to push the index higher to 25,000 and 25,200 levels in the short term. Nevertheless, the inability to move beyond 24,500 can keep the index range-bound between 24,000 and 24,500.

Traders should tread with caution as long as the index is range-bound. On the downside, if it plunges below the key support level of 24,000 decisively, it can decline to 23,700 and 23,500 levels in the ensuing weeks. Traders with a short-term perspective can consider initiating fresh short positions in that case, with a fixed stop-loss placed at 24,200 levels.

Resumption of the down-move and strong fall below 23,500 levels can drag the index lower to 23,220 and 23,000 over the medium term.

Sensex (31,596)

Despite choppy and range-bound movement, the Sensex advanced 71 points last week.

It continues to test the 50-day moving average at 31,660 levels. Thereafter, the index could face key resistances at 31,800 and 32,000 levels in the near term. Only a conclusive rally beyond 32,000 will strengthen the corrective rally and take the index higher to 32,500 in the short term.

On the other hand, significant downward break of the near-term support level of 31,200 can pull the index down to 31,000. Further slump below 31,000 can strength the downmove and drag the index down to 30,800 and 30,500 in the short term.

The medium-term uptrend in the index will continue to be positive as long as it trades above the significant medium-term support level of 30,000. Next key support to note is placed at 29,500. Key resistance above 32,500 is pegged at 33,000.

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Published on August 26, 2017
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