Technical Analysis

Index Outlook: Indices may move with a bullish bias

Yoganand D | Updated on January 19, 2019 Published on January 19, 2019

Both the Sensex and the Nifty inched up last week. Sentiment is turning positive

After a strong rally last Tuesday, the key benchmark indices — the Sensex and the Nifty — remained passive in a narrow band. The weakening of the rupee against the dollar and the rally in global crude oil prices are negative for the market. The on-going third-quarter earnings announcements of blue-chip stocks can keep the markets choppy in the ensuing week; there is also the interim budget to watch out for. On the global front, US markets witnessed a strong rally on reports that the trade war was winding down; the sentiment quickly changed from pessimism to optimism. Data on China’s GDP, and Bank of Japan and ECB rate decisions are key factors that can move the markets in the near future.

Nifty (10,906.9)

Amid volatility, the Nifty 50 index gained 112 points or 1 per cent last week. Following an initial decline, the index took support at around 10,700 and bounced up strongly, breaching the 200-day moving average. The index trades well above its 50- and 200-day moving averages. But it currently tests a key resistance at 10,900.

We reiterate that the index has been on a sideways consolidation phase in the wide range between 10,400 and 11,000 since early November 2018. It needs to decisively break above the upper boundary at 11,000 and a key trend-deciding level at 11,100 for continuation of the short-term uptrend that commenced in late October 2018.

 

 

Both the daily and weekly relative strength indices feature in the neutral region with a positive bias. The daily rate of change indicator hovers in the positive terrain, implying buying interest. A strong break-out of the above resistances is required to alter the medium-term downtrend. Such an up-move can take the index higher to 11,300 and 11,500 levels.

On the other hand, failure to break above the immediate resistance at 11,000 can keep the sideway consolidation phase intact. The index can find supports at 10,700 and at the key base in the 10,400-10,500 band if any corrective decline happens. Nevertheless, an emphatic break below the lower boundary at 10,400 will drag the index down to 10,300 and 10,100-10,000 band.

Medium-term trend: The index has retracted the 50 per cent Fibonacci retracement level of the prior downtrend that has been in place since the August 2018 high of 11,760. As long as the index trades below the key trend-deciding level of 11,100, the medium-term downtrend will be in place.

A conclusive break above 11,100 will strengthen the bullish momentum and take the index higher to 11,300 and 11,500 over the medium term. On the downside, a break above the key base level of 10,400 will alter the sideways trend and drag the index down to 10,000 levels. Subsequent key supports are at 9,900, 9,700 and 9,500 levels.

Sensex (36,386.6)

Last week, the Sensex extended its up-move by gaining 376 points or 1 per cent. It managed to close above the key resistance at 36,000 as well as its 200-day moving average. Since early November 2018, it has been on a sideways consolidation phase in the 34,600-36,600 band. The index could test a resistance at 36,600. A clear break above this barrier will strengthen the short-term uptrend and take the index higher to 37,000 and 37,400 in the medium term. Also, such a break will alter the medium-term downtrend that has been in place since the August 2018 peak of 38,989.

Conversely, occurrence of any corrective decline can find support at 35,400 or 35,000 levels. That said, a strong plunge below the significant medium-term support level of 35,000 will bring back selling interest and drag the index down to 34,600 over the medium term. Subsequent key supports are at 34,500 and 34,000.

Nifty Bank (27,456.7)

After trading in a narrow range, the Nifty Bank index closed the week almost flat, underperforming the key bellwether indices. The index trades well above its 50- and 200-day moving averages. The daily and the weekly relative strength indices are on the brink of entering the bullish zone from the neutral region. Both the daily and weekly price rate of change indicators hover in the positive territory. But the index now tests a key hurdle at 27,500.

A fall below the immediate support level of 27,250 can find support at the next base level of 27,000. However, a strong decline below 27,000 can weaken the bullish momentum and drag the index lower. Subsequent key supports at 26,700 and 26,500 can cushion the index. Avoid initiating fresh long positions on a tumble below 27,000. Key support below 26,500 is at 26,000. As long as the index trades above the vital 25,800-26,000 zone, the short-term uptrend, which commenced in October 2018, will remain intact. Subsequent supports are at 25,500 and 25,200 levels. On the upside, a strong break above the current resistance level of 27,500 can push the Nifty Bank index northwards to 27,700 and 28,000 in the short term. Fresh resistance is at 28,500. Traders with a short-term perspective can buy in dips while maintaining a stop-loss at 27,000.

Global cues

The Dow Jones Industrial Average continued to rally for the fourth consecutive week, gaining 710 points or almost 3 per cent to close at 24,706 in the previous week. Since taking support at around 22,000 in late December, the index has been on a strong up-move.

Last week, it beached a key resistance at 24,000, underpinning the uptrend. The index could test resistance at 25,000.

A strong break above this level will reinforce the bullish momentum and take it up to 25,500 and 26,000 in the short to medium-term horizon.

Key supports are at 24,000 and 23,500 levels.

Published on January 19, 2019

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