Technical Analysis

Indices in uncharted territory

Yoganand D | Updated on March 10, 2018

Both the Nifty and Sensex rallied to record highs last week amid volatility

The comfortable win for the BJP in both Himachal Pradesh and Gujarat elections boosted the market early in the week. Subsequently, the benchmark indices picked up momentum and continued to move higher with reduced volatility. Both the Nifty and Sensex closed at record highs, in a classic “Santa Claus rally”. That said, the truncated week, along with December derivatives expiry, can usher choppiness into the market.

Nifty 50 (10,493)

The Nifty started the previous week with a gap down open and swung widely. It recorded an intra-week low of 10,074 last Monday and found support in the band between 10,050 and 10,100, before bouncing back strongly. The index has gained 159 points or 1.55 per cent and closed the week at a record high.

Short-term trend: The index has been in a short-term uptrend since early December low of 10,033 levels. After an initial volatile movement in the past week, it resumed its uptrend and breached an immediate resistance at 10,400. Nevertheless, the index now tests a key medium-term resistance at 10,500 with a positive bias. The daily and weekly relative strength indices feature in the bullish zone, backing the bullish momentum. Both the daily and weekly price rate of change indicators hover in the positive territory, implying buying interest.

An emphatic break of resistance at 10,500 will strengthen both short as well as medium-term uptrends and take the index higher to 10,600 and then to 10,800.

Immediate supports are pegged at 10,400 and 10,250. Only a strong plunge below 10,250 will bring back selling pressure and pull the index down to 10,150 or to the vital support in the range between 10,000 and 10,100.

Investors with a short-term horizon can stay invested with a stop-loss at 10,250 levels. Significant supports below 10,000 are at 9,850 and 9,700 levels

Medium-term trend: Last week’s strong bounce-back and positive weekly close has reinforced the medium-term uptrend. Investors with a medium-term horizon can continue to stay invested with a revised stop-loss at 9,850 levels. A conclusive move above 10,500 can strengthen the uptrend and take the index upwards to 10,800 and 10,921 in the medium term.

However, a decisive decline below the key medium-term support level of 10,000 will be a threat to the uptrend and drag the index down to 9,700. To alter the medium-term uptrend the index needs to decisively close below 9,700 levels. Subsequent support is placed at 9,500.

Nifty Bank (25,648.5)

The volatile movement in the Bank Nifty continued last week also. After nose-diving to an intra-week low of 24,617, the index bounced up to record an intra-week high at 25,780.

However, the index managed to close on a positive note by gaining 208 points or 0.8 per cent in the prior week, underperforming the broader indices. The index now tests a vital resistance at 25,700 levels. A strong break above this level can push the index higher to 26,000 in the short term. We reiterate that traders with a short-term perspective should continue to tread with caution in the coming week also and can consider initiating fresh long positions above 25,700 with a fixed stop-loss.

Next key resistances above 26,000 are at 26,200 and 26,300. Conversely, if the index fails to move 26,000, selling pressure can emerge and the index can witness a corrective decline. Significant supports to keep an eye on are at 25,400; 25,200 and 25,000. The index requires to decline below 25,000 to alter the short-term uptrend. In that case, it can trend down to 24,800 and 24,500 levels.

Sensex (33,940.3)

Last week, the Sensex took support at 32,600 and reversed higher strongly.

Subsequently, it breached the key immediate resistance at 33,700 and registered a new high of 33,964.2.

The index advanced 477 points or 1.48 per cent last week. Indicators in the daily chart feature in the positive territory. The index trades well above its 21 and 50-day moving averages. In the truncated week ahead, the index can witness a Santa Claus rally on an emphatic break above the key hurdle at 34,000.

Such a breakthrough can strengthen the medium-term uptrend as well and accelerate the index northwards to 34,500 and 35,000 in the medium term, but minor corrective moves can’t be ruled out during this rally. Traders with a short-term horizon can go long on a decisive break above 34,000 with a stop-loss at 33,600.

Key immediate supports are placed at 33,700 and 33,500. A strong decline below the second support can be a threat to the uptrend and pull the index down to 33,200 and 33,000 in the short to medium term. Next supports are pegged at 32,600 and 32,500.

Global cues

In the previous week, the Dow Jones Industrial Average added 102 points to close at 24,754. However, the indicators and oscillators in the daily chart feature in the overbought territory, implying that a corrective decline is around the corner.

Significant supports are at 24,500; 24,300 and 24,000. Resistances to note are pegged at 25,000 and 25,200.

The Nikkei 225 bounced back smartly to finish the week on a positive note at 22,902, by gaining 349 points. It now faces a significant resistance at 23,000, which has been capping the upside since early November.

A conclusive breakthrough of this resistance is required to reinforce the bullish momentum and push the index higher to 23,300 and 23,500 in the short term. Key supports are at 22,700 and 22400.

Published on December 23, 2017

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