Index Outlook. Indices poised at a key resistance

After a sharp rally, the bellwether indices began to test resistance and paused last week. Some profit-booking also led to this minor halt. Moreover, the investors are waiting for further direction from the outcome of the RBI policy meeting scheduled for October 4.

The September month auto sales number is also a key data to watch out for in the truncated week ahead as Wednesday is a market holiday on account of Mahatma Gandhi Jayanti. If profit taking continues, the Sensex and the Nifty can witness a corrective decline; investors should, thus, tread with caution.

On the global front, Fed minutes, US jobs data and the on-going US-China trade war will affect trading sentiment this week.

Nifty 50 (11,512.4)

The Nifty index extended the rally last week by gaining 238 points or 2.1 per cent, but it remained choppy.

Following a recent sharp rally, the index now tests a key resistance at 11,500.

It currently moves sideways, forming a flag or pennant pattern in the daily chart, which is a continuation pattern. This volatility has resulted in a spinning top candlestick pattern in the weekly chart, implying indecisiveness in the near term.

Also, the index has reached the upper boundary of the Bollinger Bands, suggesting overbought levels. The daily relative strength index features in the bullish zone and the weekly RSI is charting higher in the neutral region. Both the daily as well as the weekly price rate of change indicators are hovering in the positive terrain, implying buying interest.

We reiterate that a strong break above 11,500 will reinforce the preceding uptrend as well as the bullish momentum and take the index up to 11,700 levels. Such a decisive break will also lead to a break-out of the flag or pennant pattern. The short-term trend is up now. A further rally beyond 11,700 can take the index up to 11,800.

Conversely, if the index falls below the immediate support level of 11,300 and the 200-day moving average is poised at 11,250, it will result in negating the pattern. In that case, the index will witness selling interest and slump to 11,100. Next key supports below 11,100 are at 11,000 and 10,800.

Medium-term trend: The index currently tests a key medium-term trend-deciding level at 11,500 as well as the 61.8 per cent fibonacci retracement level of the prior downtrend.

An emphatic break above this level will alter the downtrend that has been in place since registering a new high at 12,103 in early June. In that scenario, the index can trend upwards to the next resistances at 11,800 and 12,000, a psychological level in the medium term.

On the other hand, a plunge below the key medium-term support at 11,000 can pull the index lower to 10,700. A further fall under this level can drag it to the next supports at 10,600, 10,400 and 10,100 over the medium term.

Sensex (38,822.5)

Last week, the Sensex prolonged the rally on Monday and began to move sideways. Amid choppiness, the index added 807 points or 2.1 per cent. Similar to Nifty, it has also formed a spinning top candlestick pattern, depicting indecision. Therefore, in the coming truncated week, the index could remain range-bound. The Sensex tests resistance at 39,000. A further break above this barrier will strengthen the near-term uptrend and take the index higher to 39,400 and 40,000 levels over the medium term.

On the contrary, if the index observes a sideways movement or a corrective decline, it can test supports at 38,500 and 38,000. A further fall below the second support will bring back selling pressure and pull the index down to 37,500 and 37,000 levels. Key supports are pegged at 36,600, 36,400 and 36,000 levels. Investors with a medium-term perception can stay invested with a stop-loss at 36,400.

Nifty Bank (29,876.6)

The Nifty Bank stretched the rally by advancing 895 points or 3 per cent, outpacing the bellwether indices last week.The daily RSI hovers in the bullish zone and the weekly RSI hovers in the neutral region. Besides, the daily price rate of change indicator features in the positive territory, implying buying interest. The index is moving sideways in the range between 29,500 and 30,500.

A plunge below the immediate support at 29,500 can pull it down to 29,000 and then to 28,500.

As long as the index trades above the key support level of 28,500, the near-term trend will remain up. A decline below this will negate the up-move and drag the index down to 28,000 or 27,500 in the short term. Having said that, an emphatic break above the upper boundary of the range at 30,500 will underpin the uptrend and take the Nifty Bank to 31,000 and 31,500 in the ensuing weeks. Traders with a short-term horizon should remain cautious as long as the index consolidates sideways in the 29,500-30,500 range. Fresh long positions can be initiated on a rally above 30,500 with a fixed stop-loss.

Global cues

Last week, the Dow Jones Industrial Average continued to decline and fell by 114 points or 0.43 points to close at 26,820.2. A fall below the current support level of 26,800 can drag the index lower to 26,600 and then to 26,400 in the ensuing weeks. But a strong up-move beyond the immediate resistance level of 27,000 can take it higher to test the next resistance at 27,300. Key resistance above this level is at 27,500.

The Nikkei 225 continued to face resistance at 22,000 and declined 200 points or 0.9 per cent to finish at 21,878.9 levels.

A conclusive break above 22,000 can take the index higher to 22,260 and then to 22,500. Supports to note are placed at 21,700 and 21,500.

COMMENT NOW