Technical Analysis

Indices could lose momentum

Yoganand D | Updated on January 11, 2018 Published on July 29, 2017

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PO31_Index_outlook

Although the indices recorded new highs, they test key barriers. Stay cautious

There was a flurry of excitement when the Nifty briefly tested the 10,000 mark on Tuesday. But it was on Wednesday that the benchmark closed above the milestone, entering the five-digit indices’ league.

While corporate earnings was the cause for joy in certain pockets, it was mainly the derivative expiry that influenced stock price movement last week. The regulator, SEBI’s directive on unwinding P-notes that were not issued for hedging purpose led to short-covering that is purportedly behind the rally witnessed over the last couple of weeks.

Globally, in the two-day monetary policy meeting, the US Fed left interest rates unchanged. It announced that it would start reducing its balance-sheets soon.

On going results season, July month auto sales numbers and progress of monsoon could influence the movements of bellwether indices this week.

Nifty 50 (10,014.5)

After a small pause at around 9,900, the Nifty 50 index breached this barrier and marked an all-time high of 10,114.8 on Thursday. The index had gained 2 per cent to record this high in the initial four trading sessions. But profit-taking and selling pressure at higher levels evaporated some gains and the index closed the week with 1 per cent gain.

Short-term trend: High degree of intra-day volatility in the Nifty index kept investors busy through the week. Though short-covering and movement in the index stocks pushed the Nifty index northwards to test the resistances at 10,000 and 10,100, the index witnessed selling interest at the second resistance and began to decline. The index has been in a short-term uptrend since taking support at around 9,500 in late June. Nevertheless, it tests a significant resistance at 10,000 and a strong upward breakthrough is required to strengthen this uptrend.

The index trades above its 50 and 200-day moving averages. That said, the indicators and oscillators in the daily as well as charts are displaying weakness. Inability to decisively rally above 10,000, can pull the index down to 9,900 and 9,800 levels in the near term. Strong fall below 9,800 will weaken the short-term uptrend and drag the stock down to 9,700 or even to 9,500 in the short to medium term.

An upward reversal from either 9,900 or 9,800 can take the index higher to 10,100 and then to 10,200 in the short term. Traders with a short-term perspective can consider going long as long as the index trades above 9,900 with a fixed stop-loss at this levels. Conclusive fall below 9,800 will be cue for taking profits off the table.

Medium-term trend: The index has been in an intermediate-term uptrend from the December 2016 ebb of 7,893. But it now tests the psychological resistance level of 10,000.

A strong upward breakthrough is required to take the contract higher to 10,626 and 12,077 in the coming months; but with a minor pause at around 10,300 and 10,500 levels. Investors with a medium-term perspective can stay invested as long as the index trades above the key medium-term support level of 9,300. But a plunge below the immediate medium-term support level of 9,500 will spell trouble and investors can consider booking partial profits at that juncture. Next supports below 9,300 are at 9,100 and 9,000.

Nifty Bank (24,811.3)

Strong results from the private sectors banks and short-covering in the Bank Nifty index helped the index advance 554 points or 2.3 per cent in the previous week.

The index recoded a new high of 25,032 on Thursday and tests a key hurdle at 25,000. Moreover, the daily and weekly relative strength indices feature in the overbought territory indicating that there is a possibility of a near-term corrective decline in the index.

Hence, traders with a short-term view should tread with alert and hold the long positions as long as the index trades above the immediate support level of 24,500. They can consider booking profits if the index fails to move past 25,000 levels. Key supports below 24,500 are at 24,200 and 24,000. Further below 24,000 can drag the index lower to 23,740 and 23,500 levels. On the upside, vital resistance above 25,000 is at 25,500.

Sensex (32,309.8)

The Sensex advanced 280 points or 0.9 per cent in the midst of choppiness last week.

It currently tests a key barrier at 32,500. Strong break above this level can take the index higher to 33,000 in the short to medium term.

But failure to move beyond 32,500 can pull the index down to 32,000, which is the immediate key support level to watch. Further decline below 32,000 can pull the index down to 31,630 and then to 31,500 in the short term.

The daily and weekly relative strength index and price rate of change indicators continue to display negative divergence and hover in the overbought levels, signalling caution. Strong plunge below 31,500 can pull the index lower to 31,000 in the medium-term. Next supports below 31,000 to watch are at 30,800 and the 30,600-30,500 band.

Global cues

Following an initial decline, the Dow Jones Industrial Average tested the key support level of 21,500 and bounced up last week. It has advanced 250 points or 1.1 per cent to close at 21,830.3. With this rally, the near-term trend has turned positive. However, the daily relative strength index and price rate of change indicators continue to show signs of weakness. As long as the index trades above 21,500, the near-term view could stay positive. The index can trend higher and test next resistance at 22,000 levels. But the weakness in the indicators can drag the index down to 21,500. An emphatic downward break of 21,500 can pull the index lower to 21,300 and 21,100 in the short term. Significant resistance above 22,000 could be at 22,200 and 22,500. The European markets were volatile and ended the week in negative note.

Published on July 29, 2017
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