Technical Analysis

Indices poised at short-term barrier

Yoganand D | Updated on January 09, 2018 Published on November 18, 2017

The Sensex and the Nifty reversed temporarily but face resistance ahead

The bellwether indices started the week on a negative note, as fiscal concerns and increasing crude oil prices depressed stock prices. Subsequently, stocks extended their declines due to bearish global cues and selling pressure. However, reversal in global markets, coupled with value-buying at lower levels and short-covering, helped prices rebound. Moody's upgrade of India’s sovereign rating by a notch to 'Baa2' after a period of 13 years, further boosted sentiments on Friday. Global markets, crude oil price and rupee movement will determine the market direction in the coming week.

Nifty 50 (10,283.6)

Last week, the Nifty index witnessed a volatile movement. After breaching the key support level of 10,300 initially and recovering smartly to test the support-turned-resistance level of 10,300 on Friday, the index is marginally down by 38 points or 0.37 per cent.

Short-term trend: Two weeks of corrective decline in the index found support at around 10,100 and bounced up in the last part of the previous week. The 50-day moving average, poised around 10,100, also cushioned the index. Moreover, the index has significant support in the band between 10,000 and 10,050. Only a decisive fall below this base level will alter the short-term uptrend that has been in place since the September low of 9,687.

The index now tests a key resistance at 10,300 where the 21-day moving average is also poised. Also, the last two day’s recovery lacks strength. The daily relative strength index features in the neutral region and the price rate of change indicators hovers in the native territory. An emphatic break through of the current resistance is needed to strengthen the short-term uptrend and take the index northwards to the vital resistance zone between 10,450 and 10,500 in the ensuing trading sessions. Further break above this zone will reinforce the bullish momentum and take the index higher to 10,544 and 10,600 in the short term. On the downside, key supports below 10,000 are placed at to 9,900 and 9,700-9,750 zone.

Medium-term trend: The index continues to be in a medium-term uptrend. A conclusive break above the key resistance level of 10,500 will strengthen the medium-term uptrend. In that case, the index can trend up to 10,921 in the medium term, while undergoing some minor corrections on the way up.

Conversely, the medium-term uptrend will be under threat if the index declines below the key medium-term support in the band between 9,700 and 9,750. Subsequent key base levels are pegged at 9,500 and 9,300 levels.

Nifty Bank (25,728.4)

The Bank Nifty tested the key resistance at around 25,600 for more than two weeks and eventually broke upwards on Friday by gaining 281 points or 1.1 per cent. For the week, the index has gained 229 points or 0.9 per cent. The short-term trend continues to be up and will remain in place as long as the index hovers above key support level of 24,700.

The index trades well above its 21 and 50-day moving averages. It can now trend upwards and test resistance at 26,000 in the short term.

Further rally beyond 26,000 can push the index higher to 26,200. Traders with a short-term perspective can buy in dips while maintaining a fixed stop-loss at 25,400. Corrective declines can find support at either 25,600 or 25,500. That said, an emphatic decline below 25,500 can pull the index down to 25,200. In that scenario, traders should desist taking fresh long positions. Next key supports below 25,200 are at 25,000 and 24,700 levels.

Sensex (33,342)

Following a corrective decline, the Sensex found support at around 32,700 and bounded back last week. The index closed the week, up 28 points or 0.08 per cent. However, it now tests a key resistance at around 33,300. A strong break of this level is required to reinforce the bullish momentum and push the index northwards to 33,700 in the short term. Break above the key resistance level of 33,700 can take the index higher to 34,000 and then to 34,500 over the medium term.

Nevertheless, failure to move beyond 33,700 or 34,000 can keep the index moving sideways in the short term. On the downside, key supports are placed at 33,000 and 32,700, which can provide base once again if the index witnesses any corrective decline. Next significant support is placed at 32,400. A tumble below this level will mar the short-term uptrend and pull the index down to 32,000 and 31,700 in the short term.

Global cues

The Dow Jones Industrial Average was choppy and slipped 68 points to close at 23,358.2 last week. The index has formed a doji candlestick pattern in the weekly chart, implying neutral stance. It has a key immediate support at 23,300. An emphatic downward break of this level will reinforce the selling pressure and pull the index down to 23,100 and 23,000 levels. Both the daily indicators and oscillators are showing negative divergence, indicating that trend reversal is on the cards. The daily price rate of change indicator features in the negative territory, implying selling interest. Key resistances at 23,500 and 23,600 can limited the upside of the index in the near term.

But a breach of 23,600 levels can bring back bullish momentum and take the index higher to 23,700 and 23,800 levels in the medium term.

Last week, the Nikkei 225 was volatile and fell 284 points or 1.25 per cent to close at 22,396. Strong rally above 22,500 can push the index higher to 23,000 in the short term. However, inability to move beyond 22,500 can pull the index down to 22,000 in the short term.

Published on November 18, 2017
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