Technical Analysis

Index Outlook | Indices continue to face resistance

Yoganand D | Updated on November 16, 2019

Representative image   -  istock/solarseven

Both the Sensex and the Nifty take a breather; a clear direction is awaited

The past week was another lacklustre one for domestic benchmark indices. The Sensex and the Nifty remained in a narrow range, testing significant resistances. Hence, investors should tread with caution.

The mid- and small-cap indices witnessed correction, but are poised at key supports, indicating the possibility of a bounce-back in the near term. On the global front, geopolitical tensions continue to need a watch.

The minutes from the US Federal Reserve’s last meeting is awaited this week.

Nifty 50 (11,895.4)

The Nifty remained volatile last week and traded below the significant resistance at 12,000. It marginally slipped by 12 points, or 0.1 per cent. The index continues to face medium-term resistance, and has formed another spinning top candlestick pattern in the weekly chart, portraying indecisiveness.

Therefore, traders should again tread with caution and look for a decisive break above the 12,000 mark for initiating fresh long positions. On the weekly chart, the index has formed a flag pattern, which is a continuation pattern. A conclusive breakthrough of 12,000 will confirm the pattern and push the index northwards to 12,100 and then to 12,200 levels

The daily as well as the relative strength indices are featuring in the bullish zone. But the daily and the weekly price rate of change indicators are displaying mixed cues.

Also, there has been a decrease in the daily volume over the past two weeks in line with the correction. The key immediate support at 11,800 provided base last week; a fall below this level can test the next support at 11,700 in the near term.

There won’t be any threat to the short-term uptrend as long as the index trades above 11,700 levels. But a slump below this base will start weakening the uptrend and drag the index to the next supports placed at 11,550 and 11,440. An emphatic close below the trend-deciding level of 11,500 will alter the trend downwards. Subsequent supports to note are at 11,350 and 11,200 levels.

Medium-term trend: We reiterate that there is no change in the medium-term trend that has been up since the index had reversed higher from the September low of 10,670. A conclusive break above the vital medium-term resistance in the 12,000-12,100 band can accelerate the Nifty higher to 12,300 and 12,500 over the medium term.

On the other hand, a sharp fall below the key medium-term support at 11,500 will start deteriorating the uptrend. Such a move can drag the index lower to test the key trend-deciding level at 11,200. The subsequent medium-term support is pegged at 11,000, below which 10,800 and 10,700 levels can come to the rescue. Investors can make use of the corrective declines to go long with a stop-loss at 11,200.

Sensex (40,356.6)

The Sensex was choppy last week and closed on a slightly positive note by inching 33 points. The index continued to be range-bound between 40,000 and 40,600. It has also formed a flag pattern in the week chart, which has an upward bias. A strong break above 40,600 can take the index northwards to 40,725 and then to 40,900 in the coming weeks. Conversely, if it declines below the immediate support level of 40,000, the bullish momentum could wane and pull the index lower to 39,500 levels with a slight pause at 39,750 levels.

Only a strong fall below 38,500 will be a threat to the medium-term uptrend. In such a scenario, the fall can extend to the next supports placed at 38,000 and 37,500 levels over the medium term.

Nifty Bank (31,008.4)

Amid volatility, the Nifty Bank once again outperformed the benchmark indices and climbed 258 points, or 0.8 per cent. The index continues to test the crucial resistance at 31,000 levels. The daily relative strength index (RSI) features in the bullish zone and the weekly RSI has entered the bullish zone from the neutral region.

But the daily price rate of change indicator continues to show negative divergence, indicating weakness as well as the possibility of a near-term trend-reversal. Hence, traders with a near-term perspective should remain wary as long as the index tests the 31,000 mark.

A clear breakthrough of this hurdle will pave the way for an upmove to 31,500 and 32,000 in the short to medium term.

In such a scenario, traders can take long positions with a fixed stop-loss. Immediate supports at 30,500 and 30,250 can cushion the index. But a strong plunge below 30,000 will be a threat to the uptrend and drag the index lower to the subsequent support levels of 29,500 and 29,000 in the medium term.

Global cues

Last week, the Dow Jones Industrial Average surged another 323 points, or 1.2 per cent, and closed at a record high of 28,004.8. The index managed to surpass the immediate resistance at 27,800. However, it tests resistance at current levels. A further rally beyond 28,000 can push it higher to 28,250 and then to 28,500 in the coming trading session. Supports at 27,800 and 27,400 can cushion the declines.

The Nikkei 225 index was volatile and ended in the negative territory, declining 0.4 per cent to 23,303 levels. A key resistance at 23,500 had capped the upside. A strong break above this level can take it upwards of 24,000. Supports below 23,000 are at 22,700 and 22,000.

Published on November 16, 2019

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