Technical Analysis

Indices face key hurdle again

Yoganand D | Updated on May 28, 2018 Published on May 26, 2018

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.55 per cent in early trade. File Photo   -  Reuters

A decisive break out of the resistance level can bring in bullish momentum


After an initial slump, the Nifty and the Sensex bounced back, thanks to good momentum in banking and IT stocks.

Besides March quarter earnings, crude oil prices and rupee movement, investors need to watch out for January-March 2018 GDP data due this week. Moreover, the May month derivatives expiry can create some choppiness in the market. The May month auto sales numbers will also be released towards the end of the week.

Globally, it is a big week of US data, starting from US consumer confidence data, US GDP growth numbers and ending with non-farm payrolls. The week will keep global investors on tenterhooks, with political developments in Spain and Italy also needing a close watch.

Nifty (10,605.1)

It was another volatile week for the Nifty 50 index, as it declined to an intra-week low of 10,417 before bouncing back to close on a marginal positive note. The index has added just 8.75 points last week.

Short-term trend: The short-term uptrend that has been in place from the March low at around 10,000 appears to have revived, as the index reverses higher from the 10,420 levels, on the back of short-covering as well as buying interest in the previous week. That said, the index faces key resistance ahead at 10,700 which it had surpassed recently. But it failed to sustain above this level.

We reiterate that a strong breach above this level is required to reinforce the bullish momentum and take the index higher to 10,900 once again. Next resistances are at 11,000 and 11,150 levels.

But failure to breach this level can pull the index down to test support at 10,400. An immediate support is at 10,500. Only a decisive fall below 10,350 can alter the uptrend and pull the index lower to 10,250 and then to 10,100. Ensuing supports are placed at 10,000, 9,700 and 9,500 levels.

Medium-term trend: The medium-term downtrend from the January peak of 11,171 will remain in place as long as the index trades below 10,700. On the other hand, the index found support at 10,400 and rebounded last week. It once again faces a significant trend-deciding resistance at 10,700.

The index needs to conclusively break above the near-term resistance at 10,700 to bring back bullish momentum and take it higher to 11,000 and 11,200 levels.

Such an up-move will alter the downtrend. Conversely, if the index decisively breaks below 10,400, the downtrend will strengthen and it can decline to 10,200 and 10,000 over the medium term. To sum up, the index hovers at a crucial level once again.



Sensex (34,924.8)

Following a wide swing, the Sensex managed to close on a positive note, adding 76 points. The index took support at 34,300 and bounced back in the latter part of the week. But the index tests a key resistance at 35,000.

An emphatic breakthrough of this resistance can take it up to 35,500 and then to 35,800-36,000 range in the ensuing weeks. That said, inability to sustain above 35,000 levels can drag the index down to 34,600 and 34,300 levels.

Medium-term trend: The index once again tests a key trend-deciding level around 35,000.

A conclusive breach and a strong footing above this level is required to alter the downtrend and take the index higher to 35,800 and 36,000. Significant resistance above these levels are at 36,200 and 36,400 levels.

On the other hand, key medium-term support at 34,000 can provide base in case of a corrective decline.

A strong drop below this level will strengthen the downtrend and drag the index down to 33,400 in the medium term. Next supports are fixed at 33,000 and 32,500 levels.

Nifty Bank (26,273.5)

The Bank Nifty has gained 397 points or 1.5 per cent last week, outperforming the bellwether indices. After an initial decline, the index took support at 25,622 and reversed higher. With this rally, it appears to have resumed its short-term uptrend that has been in place from the March low of 23,605. The index trades well above its 21- and 50-day moving averages.

The daily indicators have re-entered the positive territory. Nevertheless, the Bank Nifty faces a major resistance at 26,500. A strong breakthrough of this level can push the index higher to 27,000 levels again.

Traders with a short-term view can take long positions in dips with a stop-loss at 25,950 and consider exiting at 26,500 or 27,000 levels in the coming week. Subsequent key resistance above 27,000 is placed at 27,500.

On the downside, a decline below the immediate support band between 25,500 and 25,600 will be a threat to the on-going uptrend.

Such a fall can pull the index down to 25,000 and then to 24,500 levels over the medium term.

Global cues

The Dow Jones Industrial Average continues to test a key resistance in the 24,800-25,000 range. It advanced 38 points to close at 24,753. The key hurdle has been capping the upside for the index over the past two weeks.

A strong break above 25,000 is needed to reinforce the bullish momentum and take the index higher to 25,300 and 25,500 levels. Immediate supports are at 24,500 and 24,000 levels.

Published on May 26, 2018
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