Technical Analysis

Indices make a strong comeback

Yoganand D | Updated on December 16, 2018 Published on December 15, 2018

But the Sensex and the Nifty may face key resistance ahead

Taking cues from the bearish global markets, key benchmark indices — the Nifty and the Sensex — began the previous week on a negative note. Resignation of the RBI Governor, Urjit Patel, and the results of the five State elections kept domestic markets on tenterhooks. The quick appointment of Shaktikanta Das as the new RBI Governor, sanguine inflation reading for November and robust IIP numbers, saw markets gaining momentum in the latter part of the week. However, upcoming key global events such as the US Fed meeting, Bank of Japan and Bank of England’s rate decisions will likely drive domestic markets next week.

Nifty (10,805.4)

The Nifty 50 index gained 111 points or 1 per cent last week. After an initial decline, the index found support at 10,333 and bounced back strongly last Tuesday. Thereafter, it extended the up-move and managed to close above its 200-day moving average. Currently, the stock tests the key trend-deciding 10,700-10,800 band. An emphatic break above this barrier is required to strengthen the up-move that commenced from the October low at around 10,000. Such a break will also alter the downtrend that has been in place since the late August peak of 11,760 levels.

Further, the index has an additional vital resistance at the 11,000-mark, which also needs to be surpassed for a convincing trend reversal. Such a break-out will pave way for an up-move to 11,100 and to 11,300 in the short term. However, failure to decisively break above the key resistance level of 10,800 can see the index consolidating sideways in the 10,500-10,800 band for some more time.

Conversely, a strong tumble below the significant base level of 10,500 can pull the index down to 10,400 and 10,300, which can provide base for the index. Having said that, if the index slumps below 10,300, it can witness selling pressure. In such a scenario, it can decline to 10,100 and 10,000 levels in the short term. Traders with a short-term perspective can consider taking fresh long positions on a decisive break above 10,800 with a fixed stop-loss.

Medium-term trend: Last week’s one per cent rally can strengthen the upmove in place from the October low. A conclusive break above 11,000-mark will reinforce the bullish momentum and take the index northwards to 11,300 and 11,500 in the medium term. On the other hand, a fall below 10,400 can pull the index down to 10,000 initially. A further decline below the significant medium-term support level of 10,000 can drag the index down to 9,900, 9,700 and 9,500 levels over the medium term.


Sensex (35,962.9)

Last week, the Sensex slumped initially, but the key support at around 35,000 held well and cushioned its fall. Taking support at the intra-week low of 34,426, the index reversed strongly, surpassing its 200-day moving average. It trades well above its 50- and 200-day moving averages. But the index now tests a key resistance in the 35,800-36,000 band. An emphatic weekly close above 36,000 levels is needed to strengthen the uptrend. Besides, the index has another key resistance at 36,500, which also needs to be surpassed. A rally above 36,500 will take it higher to 37,000 and 37,400 over the medium term.

Conversely, if the index falls below the immediate near-term support level of 35,500, the decline can extend to the next crucial support level of 35,000. But to alter the near-term up-move, the index needs to fall conclusively below 35,000. It can subsequently trend down to 34,500 and 34,000 in the short to medium term.

Nifty Bank (26,826)

The Nifty Bank index was very volatile last week. It tumbled initially to an intra-week low of 25,598, before recouping the entire loss and making a strong comeback. The index advanced 231 points or 0.87 per cent last week. It has conclusively surpassed the 200-day moving average and trades well above this average line. Although the near-term trend is up for the index, it faces a key resistance ahead at 27,000. A strong break above 27,000 will reinforce the bullish momentum and take the index up to 27,500 and then to 27,700 levels in the short term. Subsequent, key resistance above 27,700 is at 28,000.

Traders with a short-term horizon should tread with caution and consider taking fresh long positions on a clear break above 27,000 levels, while retaining a fixed stop-loss.

Nevertheless, a downward reversal from the key resistance can drag the index down to 26,500 initially. A further fall below this base, can see the index testing supports either at 26,300 or 26,000. A downward break below 26,000 will bring back selling interest and pull the index lower to 25,700 and then to 25,500 in the medium term. Supports thereafter are placed at 25,200 and 25,000 levels.

Global cues

The Dow Jones Industrial Average continued its down-move by plunging 289 points or 1.18 per cent in the previous week and ended at 24,100.5. The index tests a key support at 24,000 with a negative bias. The short-term outlook is bearish.

A conclusive break below the current support level of 24,000 will strengthen the downtrend that has been in place from the October 2018 high of 26,951 and drag the index down to the next support level of 23,500 and 23,000 in the short term. On the upside, key resistances at 24,400 and 24,600 could limit the upside. A strong rally above 24,600 can witness a corrective rally and the index can test 25,000 levels. Next vital resistances are at 25,300 or 25,500 levels.

Published on December 15, 2018

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