Technical Analysis

Market outlook: Indices poised at crucial barrier

Yoganand D | Updated on December 22, 2018 Published on December 22, 2018

The Sensex and the Nifty continue to hover around key resistances. Stay cautious

The Nifty and the Sensex failed to sustain the rally towards the end of the week and tumbled sharply, taking cues from weak global markets.

On Wednesday, the Federal Reserve announced its fourth quarter-point rate hike, dragging the Dow Jones and S&P 500 down to their 52-week lows.

This weakness kept the Asian and domestic markets under pressure. Also, profit-booking ahead of the truncated week and holiday cheer could have resulted in selling on Friday.

Investors need to tread with caution in the coming week as volatility and selling pressure due to expiry of the December derivative contracts can keep the indices on the edge.

Crude oil (WTI) price tumbled 11 per cent in the previous week and trades at $45.5 a barrel, above the key support at $42.

Nifty (10,754)

After an initial gain of 1.6 per cent, the Nifty 50 index marked an intra-week high at 10,985 on Wednesday and began to decline. Friday’s 197 points or 1.8 per cent decline wiped out all the gains and the index closed the week eventually on a negative note, declining marginally 51 points or 0.48 per cent.

The key trend-deciding 10,700-10,800 band once again halted the index rally last week and proved that it is the vital band that needs to be conclusively breached.

The index has been facing difficulty in surpassing this band over the past four weeks.

A decisive break above this band is needed to reinforce the bullish momentum. The index faces the next key resistance around 11,100 and this level needs to be surpassed for the medium-term downtrend to reverse.

On the other hand, continued failure to surpass the 10,800 level will indicate weakness and possible resumption of the medium-term downtrend.

The index is pausing above key support at 10,700. A fall below this level can drag it down to 10,500 in the near term.

But a conclusive fall below the vital support level of 10,500 will drag the index further down to 10,400 and 10,300, where the index can find support.

Next key supports for the index are at 10,100 and 10,000 levels.

Medium-term trend: The medium-term trend has been down since the August peak of 11,751.

An emphatic break-out of 11,100 is required to strengthen the bullish momentum and push the index higher to 11,300 and 11,500 in the ensuing month.

On the downside, if the index plunges below the key support level of 10,400, it can fall to 10,000. A downward break of this base level can pull the index down to the next key support levels at 9,900, 9,700 and 9,500 levels over the medium term.

Sensex (35,742)

Amid volatility, the Sensex ended the week on a negative note, declining 220 points or 0.6 per cent in the previous week.

The index has once again failed to decisively move beyond the key resistance in the 35,800-36,000 band and continues to test this band.

Ongoing corrective decline can find supports at 35,400 or 35,000 in the ensuing trading sessions. An upward reversal from the key supports can take the index higher to 36,000 levels.

A conclusive break above this resistance is required to reinforce the bullishness and push the index higher to 36,500 which is also a vital resistance.

A decisive break above 36,500 will take the index up to 37,000 and 37,400 over the medium term.

On the other hand, a strong tumble below the 35,000 will alter the short-term uptrend and pull it down to the next key support level of 34,500 and 34,000 in the short to medium term.

Nifty Bank (26,869.6)

The Nifty Bank fell 405 points or 1.5 per cent on Friday, giving away its initial gains. The index closed the week with a marginal gain of 43 points or 0.16 per cent.

The Bank Nifty continues to test the key resistance at 27,000 and witnesses selling interest at higher levels.

The short-term trend has been up for the index since taking support at 24,240 in early October.

A strong break-out of 27,000 will strength the uptrend and take the index up to 27,500, 27,700 and 28,000 in the short to medium term.

Traders with a short-term perspective should stayalert in the truncated week ahead and consider taking fresh long positions on a strong rally above 27,000 levels with a fixed stop-loss.

That said, failure to move beyond 27,000 can drag the index down to the immediate support level of 26,500.

But a slump below this base level can pull the index lower to the next key support at 26,000 in the short term.

As long as the index trades above the key support band between 25,800 and 26,000, the short-term uptrend will be up. Key supports below 25,800 are placed at 25,500 and 25,200 levels.

Global cues

Extending the downtrend, the Dow Jones Industrial Average plummeted 1,655 points or 6.8 per cent in the previous week, breaking below the key support level at 24,000.

The index closed at 22,445.3. It trades at the oversold territory and the daily indicators and oscillators feature in the oversold territory, indicating that a corrective up-move is possible in the near term.

Moreover, the index has a key support ahead in the 22,000-22,200 range, which can arrest the fall in the ensuing week.

Next key supports are at 21,700 and 21,500. Resistances are at 23,000 and 23,500.

A strong rally above 24,500 is needed to alter the short-term downtrend and take the index up to 25,000 and 25,500 levels.

Published on December 22, 2018
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