Technical Analysis

Indices continue to cling to resistance

Yoganand D | Updated on August 20, 2018 Published on August 18, 2018

The Nifty and the Sensex could be choppy. Tread with caution

Taking cues from the negative global markets, the domestic bellwether indices — the Sensex and the Nifty — plunged sharply initially. A weak rupee, declining to new lows, also dragged the market lower.

However, decreasing inflation and strong value-buying in the large-cap stocks pushed the indices higher. Banking, pharma and IT stocks edged higher, recouping the benchmark’s initial slump, also backed by positive global cues.

The trade talks between US and China can lend direction to the global markets in the coming truncated week. The Federal Reserve will release the minutes of its August monetary policy meeting this week. A rebound in the rupee from the ebb could also aid the markets. Traders can remain cautious in the ensuing week as the indices hover at key resistance area.

Nifty (11,470.7)

After an initial decline last Monday, the Nifty 50 index took support at 11,340 and bounced up. Thereafter, it continued to move upward in the midst of choppiness. We reiterate that the index faces key resistance ahead at 11,500.

Short-term trend: The Nifty index continues to be in a short-term uptrend. Nonetheless, it faces difficulty in surpassing the key resistance level of 11,500 as the indicators and oscillators in the daily chart show signs of weakness. Moreover, the indicators in the daily chart display negative divergence, implying that there could be potential trend reversal in the offing.

With the current volatility, traders should remain cautious in the upcoming truncated week. A strong upward break above the immediate resistance at 11,500 will underpin the bullish momentum and take the index higher to 11,655 and 11,700 levels.

That said, if the index faces challenge in decisively breaking above the key resistance, it will keep moving sideways in the 11,340-11,500 band for a while. An emphatic fall below the key support level of 11,340 will pull the index lower to 11,210 and, thereafter, to 11,150 levels in the short term.

We re-affirm that there won’t be any major threat to the short-term up trend that has been in place from June, as long as the index trades above 11,150 levels. Nevertheless, a tumble below this base level can bring back selling pressure and drag the index lower to 11,065 and 10,935 levels. Traders with a short-term perspective can hold the long positions with a stop-loss at 11,150 levels. Subsequent supports are placed at 10,850 and 10,700.

Medium-term trend: There is no major change in the medium-term uptrend that has been intact since the index took support at 9,951 in late March 2018. There are key supports pegged at 11,100 and 10,,800 which are vital levels from a medium-term perspective. The index continues to face a key resistance ahead at 11,500. A strong breakout of this hurdle will strengthen the uptrend and push the index northwards to 11,600 and 11,887 over the medium term. On the other hand, if a corrective decline occurs, then such a fall can take support in the range between 11,000 and 11,110. Only a conclusive plunge below the base zone will be threat to the uptrend and pull the index down to the next supports at 10,800 or at 10,600 over the medium term.


Sensex (37,947.8)

The Sensex added 78 points or 0.2 per cent in the previous week. The index endures a key resistance at 38,000 and tests it. A conclusive breach of this level will pave way for an up-move to 38,200 and 38,400 levels in the short term. But inability to decisively move beyond the resistance can witness a false breakthrough and the index can retreat from the highs thereafter. Hence, a conclusive break-out is required to reinforce the uptrend and take the index northwards. That said, the daily indicators and oscillators show signs of weakness and negative divergence, indicating the possibility of a trend reversal. A fall below the near-term support level of 37,600 can pull the index lower to 37,200 and 37,000 in the short term. To weaken the short-term uptrend, the stock needs to plunge below 37,000 decisively. Next supports at 36,600 and 36,500 can cushion the index.

Nifty Bank (28,128.5)

Following a 1.2 per cent decline last Monday, the Bank Nifty recouped the loss in the subsequent trading sessions and closed the week almost on a par. The short-term trend remains up for the index.

The indicators in the daily chart show mixed signs. The index faces resistance at 28,350 and 28,500 levels, which could limit the upside in the ensuing weeks. A downward reversal from the key resistances can drag the index lower to the immediate support level of 28,000 and 27,800 levels.

A fall below these supports can pull the index down to 27,500 levels. Following supports to note are at 26,500, 26,250 and 26,000. Traders with a short-term perspective should tread with caution as long as the index trades in the 28,000-28,350 band. An emphatic breakthrough of 28,500 can accelerate the index higher to 29,000 over the medium term.

Published on August 18, 2018
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