Technical Analysis

Indices poised below a key hurdle

Yoganand D | Updated on January 10, 2018


Breaking the barriers will strengthen the bullishness and take the indices up

Indices managed to inch up despite multiple head-winds last week. Besides short-covering ahead of the derivatives expiry, strong auto sales and encouraging August manufacturing data boosted the investors’ sentiment, despite the disappointing GDP numbers. With the quarterly results announcement coming to an end, the focus will be on the next key macro data — August consumer price data due on September 12. Globally, the geopolitical concerns regarding North Korea aren’t over. Investors could seek cues from the global markets next week.

Nifty 50 (9,974.4)

Regardless of volatility, the Nifty 50 index advanced 117 points or 1.2 per cent in the previous week. The key support at 9,800 cushioned the index. Moreover, the gains in auto, metal, pharma and realty stocks backed the rally. IT and PSU bank stocks were muted last week.

Short-term trend: Last week, the Nifty managed to surpass the key immediate resistance at 9,900, which had limited the rally in mid and late August. This up-move, coupled with breach of the 21 and 50-day moving averages, shows initial signs of bullishness. The daily price rate of change indicator has moved above the zero line, indicating buying interest. The daily relative strength index is charting higher in the neutral region and a move beyond 60 will bring bullish momentum.

However, the index faces a major psychological barrier at 10,000, which could be tested this week. An emphatic breakthrough of this hurdle will strengthen the bullishness and take the index higher to 10,100 and 10,200 levels in the near term.

Traders with a short-term perspective can initiate fresh long positions on a strong rally above 10,000 with a fixed stop-loss. However, inability to surpass 10,000-mark can pull the index down to test the significant support at 9,800 levels. Further fall below 9,800 can drag the index down to 9,700 in the short term. Only a decisive downward break of 9,700 will intensify the selling pressure and pull the index lower to 9,500 levels in the short term.

Medium-term trend: The index continues to be in a corrective up-move. Strong breach of the resistance at 10,000 will imply that this is yet another leg of the ongoing long-term uptrend and can take the index higher to 10,200 levels. Further continuation of the up-move can push the Nifty northwards to 10,854 and 11,360 in the medium term.

That said, the indicators and oscillators in the weekly chart continue to display weakness. A downward reversal from either 10,000-mark or 10,100 can pull the index down to 9,700 levels. Strong plunge below 9,500 could start weakening the medium-term uptrend. In that case, the index can slip to 9,300 and 9,120 in the medium term. The index has significant medium-term support at 9,500 which could cushion the decline if that happens.

Nifty Bank (24,434)

Under-performing the bellwether indices, the Bank Nifty climbed 115 points or 0.7 per cent last week. However, the index tests 21-day moving average at current levels and a key resistance at 24,500 levels. An emphatic rally above this level is required to bring back optimism and take the index higher to 25,000 and 25,200 levels in the short term.

But failure to advance above 24,500 levels can keep the index consolidating sideways in the band between 24,000 and 24,500.

Traders with a short-term perspective should tread with caution as long as the index moves sideways. Strong rally above 24,500 will be a positive cue for initiating long positions with a tight stop-loss. Conversely, if the index tumbles below the key support level of 24,000, it can decline to 23,700 and 23,500 in the short term. Medium-term supports below 23,500 are at 23,220 and 23,000.

Sensex (31,892.2)

The Sensex extended its gains for the third consecutive week by climbing 296 points or almost 1 per cent in the previous week. Friday’s 161 points or 0.5 per cent gains was the major contributor to this rally and, with this rally, the index has managed to breach its 21 and 50-day moving averages marginally. The Sensex currently tests a key resistance in the band between 31,800 and 32,000. A decisive upward break of this resistance zone is needed to reinforce the bullish momentum and push the index northwards to 32,500 and 32,700 levels in the short term. Resistance above 32,700 is at 33,000.

Alternatively, any downward reversal from this resistance band can find support at either 31,300 or 31,000 levels. But further decline below 31,000 can increase the selling pressure and pull the index lower to 30,800 and 30,500 in the short term.

The significant medium-term support level of 30,000 can keep the medium-term uptrend intact. Only a strong decline below this level will be threat to the uptrend. Next key support is at 29,500.

Global cues

The Dow Jones Industrial Average extended its rally by gaining 173 points or 0.8 per cent to close at 21,987.5 in the previous week. Now, the index tests a key barrier at 22,000 levels. Strong rally above this level can push the index higher to 22,150 or 22,200 levels. But a downward reversal from this barrier can pull the index down to 21,800 and 21,650 levels.

Last week, the key support at 19,300 halted the short-term decline of the Nikkei 225. It has advanced 238 point or 1.2 per cent to close at 19,691.

It currently tests the resistance at 19,700. A breach of this level can take it higher to 20,000. Supports to note are at 19,500 and 19,300.

Published on September 02, 2017

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