Technical Analysis

Market outlook: Indices consolidate in a range

Yoganand D | Updated on January 12, 2019

Both the Sensex and the Nifty continue to test significant resistances. Stay watchful

Domestic benchmark indices — the Sensex and the Nifty — stayed volatile last week following a positive start. The fall in industrial growth to a 17-month low of 0.5 per cent in November and subdued start to the third-quarter earnings season, kept the indices range-bound. The upcoming results of the blue-chip stocks such as Reliance and HUL need a close watch.

On the global front, US trade balance, earnings announcements and US retail sales are some of the key events to lookout for.

Nifty (10,794.9)

Last week, the Nifty 50 index was again volatile and range-bound. It added 67 points or 0.6 per cent. The index formed a small doji candlestick pattern on the weekly chart, indicating indecision, and continues to trade around the 21- as well as 200-day moving average line poised at 10,800.

The index has been on a sideways consolidation phase in the wide range between 10,400 and 11,000 since early November 2018. We reiterate that the index requires to break-out of this sideways range for a clear short-term trend to emerge.

The daily and weekly relative strength indices hover at the mid-level (at 50 level) in the neutral region without any preference. The price rate of change indicator displays a mixed signal.

A conclusive rally above the significant resistance at 11,000 is required to reinforce the bullish momentum and push the index higher to 11,100 in the near term. To alter the downtrend, the index needs to decisively move above 11,100 levels. Next short-term targets for the index are 11,300 and 11,500 levels.

Conversely, a fall below the immediate support at 10,650 can drag the index lower to the next key support in the 10,400-10,500 band. The ongoing sideways consolidation phase will be intact as long as the index trades above 10,400 levels.

However, a strong downward break of the sideways range can drag the index lower to 10,300 and 10,100-10,000 zone, which is a key support band to watch. The index now tests a key resistance at 10,800. A breach of this barrier can push i up to 11,000 in near term.

Medium-term trend: There is no major change in the medium term trend for the index. It has been down since the August 2018 high of 11,760. This downtrend will remain in place as long as the index trades below the key trend-deciding level of 11,100.

Moreover, this will also keep open the possibility of the index testing the vital support at 10,000. On the other hand, a strong break above 11,100 will change the downtrend and pave way for an up-move to 11,300 and 11,500 in the medium term.

But an emphatic plunge below the lower boundary at 10,400 will underpin the downtrend and pull the index lower to 10,000. Subsequent supports at 9,900, 9,700 and 9,500 will come into play on a strong fall below the 10,000-mark.

Sensex (36,009.8)

In the midst of choppiness, the Sensex added 314 points or 0.8 per cent in the previous week. It moved in a narrow range and has formed a spinning top candlestick pattern on the weekly chart, signalling indecision. The index has been on a sideways consolidation phase in the 34,600-36,600 band since early November 2018. Within this range, it tests key resistance at 36,000. It hovers marginally above the 200-day moving average line.

We reaffirm that traders with a short-term perspective should tread with caution as long as the index is range-bound. An up-move above 36,000 can take the index above the upper boundary at 36,600 in the near term.

But to alter the medium-term down-trend that has been in place since the August 2018 peak of 38,989, a conclusive break-out of 36,800 is required. In that scenario, the index can trend upwards to 37,000 and 37,400 in the medium term. On the other hand, inability to move beyond the immediate resistance can drag the index lower to 35,400 or 35,000 levels.

Nevertheless, a further fall below 35,000 is needed to bring strong selling pressure and pull the index lower to 34,600 over the medium-term. Subsequent key supports are placed at 34,500 and 34,000.

Nifty Bank (27,453.9)

The Nifty Bank index has outperformed the bellwether indices by advancing 0.95 per cent in the previous week. It has managed to conclusively close above the key resistance level of 27,000. The daily and weekly price rate of change indicators feature in the positive terrain, implying buying interest.

But the relative strength index hovers in the neutral region, signalling a neutral stance. Any corrective decline can find base at 27,000, which will act as a key support now.

An extension of the uptrend can take the index up to 27,700 and 28,000 in the ensuing weeks. Next resistance is at 28,500.

Traders with a short-term perspective can buy the contract in declines with a stop-loss at 27,000. But a tumble below 27,000 can bring back selling pressure and diminish the bullish momentum.

In that case, subsequent key supports at 26,700 and 26,500 can provide base. Desist taking fresh long positions on a fall below 27,000. Next support below 26,500 is at 26,000.

The short-term uptrend that has been in place since October 2018 will remain intact as long as the index trades above the 25,800-26,000 band. Supports to note below 25,800 are at 25,500 and 25,200 levels.

Global cues

Last week, the Dow Jones Industrial Average jumped 562 points or 2.4 per cent to close at 23,995.9, extending its short-term rally. The index took support at around 22,000 in late December and reversed higher strongly. Since then, Dow Jones has been on a near-term uptrend. But it now tests a key resistance at 24,000.

A break above this barrier will pave way for an up-move to 24,500 levels. A further break above 24,500 is needed to alter the short-term downtrend and push the index northwards to 25,000 and 25,500 over the medium term. Key support at 23,500 and 23,000 can cushion any corrective decline.

Published on January 12, 2019

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