Technical Analysis

Indices continue to test resistance

Yoganand D | Updated on April 06, 2019 Published on April 06, 2019

Both the Sensex and the Nifty recordednew highs last week. Stay cautious

It was a volatile week for the key benchmark indices — the Sensex and the Nifty. After scaling new highs in the beginning of the week, the indices slumped, erasing their initial gains, before staging a recovery. Both the indices have formed a doji candlestick pattern in the weekly chart, implying indecisiveness.

In the latest policy meeting, the RBI cut both the repo rate by 25 basis points to 6 per cent and its inflation forecast for the first half of 2019-20. But the central bank lowering the GDP growth forecast for 2019-20 and retaining its ‘neutral’ stance kept markets subdued. In the coming week, the rupee movement and WTI crude oil price touching $63 a barrel need a close watch.

Also, outcome of the US-China trade talks, US retail sales and non-farm payrolls data will be keenly awaited.



Nifty 50 (11,665.9)

Amid volatility, the Nifty index climbed 42 points or 0.36 per cent in the previous week. The index formed a doji candlestick pattern in the weekly chart, implyingindecisiveness. It tests a key resistance in the 11,700-11,750 region. A strong rally above this barrier can underpin the bullish momentum and take the index higher 11,800 and 11,900 in the near term. Subsequent key resistance, which is also a psychological barrier, is at 12,000.

The daily relative strength index and the price rate of change indicator display negative divergence, implying that trend reversal could be on the cards.

On the downside, a decisive fall below the immediate base level of 11,500 can bring back selling pressure. In such a scenario, the index can decline initially to 11,400 and then to 11,300 in the short term. Next key support below 11,300 is in the 11,000-11,100 band.

We reiterate that an emphatic plunge below the significant support level of 11,000 will mitigate the short-term uptrend and pull the index down 10,800 levels. Subsequent key supports are placed at 10,600 and 10,400 levels.

Medium-term trend: The medium-term trend has been up, since the Nifty index took support at 11,000 in October 2018. This uptrend will stay intact as long as the index trades above the trend-deciding support level of 10,600.

A strong rally beyond the current resistance in the 11,700-11,750 zone can take the index higher to 11,900 and 12,000 levels. Conversely, if the index tumbles conclusively below the key base level of 10,600, the uptrend will be altered, dragging the index down to 10,400 and 10,000 levels over the medium term.

Sensex (38,862.2)

Last week, the Sensex gained 189 points or 0.5 per cent, amid choppiness. The index has formed a doji candlestick pattern in the weekly chart, implying neutral stance. It now tests a key barrier at the 38,800-39,000 band. A strong break above this resistance will strengthen the uptrend and take the index northwards to 39,400 and 39,800 levels in the medium term.

An inability to move beyond the current resistance can drag the index lower to 38,200 and 37,800 in the short term.

An emphatic break below the key base level of 37,800 can pull it down to 37,500 and 37,000. Next key support below these levels is placed at 36,500. The short-term uptrend will be altered if the index plunges below 36,500 levels.

Such a fall can pull the index down to 36,400 and 36,200 levels. As long as the index trades above 35,800, the medium-term uptrend will remain in place.

Investors with a medium-term perspective can hold the long positions with a stop-loss at 36,400 levels.

Nifty Bank (30,084.6)

The Nifty Bank index underperformed the benchmark indices last week and slumped 342 points or 1.1 per cent. The index tested key resistance at 30,500 and retreated. The daily relative strength index and price rate of change indicator show negative divergence that implies trend reversal is in the offing. The index now tests a support at 30,000. A decisive fall below this base level can drag it down to 29,500 and 29,280 levels.

Crucial short-term supports are at 29,000 and 28,500 levels. A strong tumble below 28,500 is needed to alter the short-term uptrend and drag it down to 28,000 and 27,500 levels. Traders with a short-term view can initiate fresh short positions on a decisive fall below 30,000 with a fixed stop-loss. On the other hand, a conclusive break-out of the immediate resistance at 30,500 is required to reinforce the positive momentum and take the index up to 31,000. Next resistances are at 31,500 and 32,000 levels.

Global cues

The Dow Jones Industrial Average breached a key resistance at 26,000 by advancing 496 points or 1.9 per cent to close at 26,424.9. The index now faces next resistance at 26,500.

A further rally above this level can take the index up to 27,000 in the short term. Conversely, if it fails to move beyond 26,500, it can correct in the near term . Supports at 26,250 and 26,000 can provide base.

A strong plunge below 26,000 can drag the index down to 25,500 in the short term.

Next supports are at 25,200 and 25,000.

Published on April 06, 2019
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