Technical Analysis

Index Outlook: Indices to remain range-bound, choppy

Yoganand D | Updated on August 18, 2019 Published on August 17, 2019

The Sensex and the Nifty were volatile last week and face resistance ahead. Tread with caution

The Sensex and the Nifty continued to trend down last week, tracking bearish cues from the global markets. Rising concerns over a slowdown in the domestic economy, muted June quarter corporate earnings and lingering concerns over US-China trade war, kept markets on tenterhook. All eyes are on the big bang stimulus measures that the market is hoping the government may announce.

On the global front, the Fed’s minutes from its July policy meeting and ECB minutes will be keenly watched. With the indices range-bound and global indices volatile, investors should tread with caution.

 

Nifty 50 (11,047.8)

In the truncated past week, the Nifty fell sharply on Tuesday and took support at 10,900 levels. The index fell 61 points or 0.56 per cent last week. It has been in a sideways range in the band between 10,800 and 11,200 over the past two weeks. It continued to face a hurdle at its 200-day moving average and a key resistance level at 11,200.

The daily and weekly relative strength indices hover in the neutral region. We reiterate that a strong breakthrough of the immediate key resistance is needed to strengthen the corrective up-move and push the index up to the next resistances at 11,400 and 11,500 levels in the short term.

But inability to rally above 11,200 levels will retain the sideways movement for some more time. The index can take support at 10,900 or 10,800 levels.

An emphatic break-out of 11,500 levels can change the short-term downtrend that has been in place from this June high of 12,103 and take the Nifty up to 11,700 and 11,800 over the short-to-medium term. Subsequent crucial resistance for the index is at 12,000, which is a psychological barrier to note.

On the other hand, a decisive decline below the immediate support at 10,800 will strengthen the downtrend and pull the index lower to 10,600 levels over the short-to-medium term. This will imply reversal of the medium-term uptrend and the index can decline to the next key support level of 10,400 and 10,100.

Medium-term trend: The Nifty is poised above a key support in the 10,800-11,000 band; the medium-term uptrend is under threat. An up-move beyond 11,500 can mitigate the threat and push the index up to 11,700 and 11,800 levels over the medium term. It can revisit 12,000 levels on a strong breach of 11,800 levels. On the downside, a strong fall below 10,800 levels will change the medium-term uptrend that has been in place since last October. Next significant supports placed at 10,600, 10,400 and 10,100.

Sensex (37,350.3)

The key resistance in the band between 37,800 and 38,000 appears to be capping the upside in the Sensex.

Amid volatility, the index closed in the red, declining 231 points or 0.6 per cent last week. On the downside, the significant support in the range between 36,600 and 37,000 had provided base. A failure to break above 38,000 level decisively can keep the index consolidating sideways in a wide band between 36,600 and 38,000 in the short term.

A strong decline below the above-mentioned support zone will strengthen the downtrend and drag the Sensex lower to 36,400 and 36,000 in the short term. Next supports are placed at 35,500 and 35,000 levels.

The index currently tests the 200-day moving average. A decisive rally in the ensuing week can take the index higher to 38,000. A strong breakthrough of this barrier can extend the corrective rally to 38,600 levels.

Nevertheless, to alter the short-term downtrend, the index needs to break-out of 38,600 levels. In such an event, it can trend upwards to 39,000 and 39,400 in the short to medium term.

Nifty Bank (28,217)

Last week, the Nifty Bank index was volatile. After taking support at around 27,700, it bounced up. But the index ended the week in the red, declining 214 points or 0.76 per cent. It faces a key resistance as well as the 200-day moving average ahead at 28,500 levels. The daily relative strength index has recovered from the oversold territory and entered the neutral region from the bearish zone.

An emphatic breach of this barrier will strengthen the corrective rally and push the index up to 29,000 in the near term. A strong rally beyond this hurdle will extend the corrective rally to 29,500 and 30,000 levels.

As long as the index trades below 30,000, the short-term downtrend that has been in place since early July will continue. Next vital resistances are placed at 30,500 and 31,000 levels. But inability to rally above 30,000 levels will keep the downtrend intact and drag the index lower to 27,700 once again.

Next crucial base is at 27,500. A conclusive decline below 27,500 will pull the index down to 27,000 levels in the short-to-medium term. We restate that traders with a contrarian view can consider taking long positions on a strong rally above 28,500 levels with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average managed to trim its initial loss to 410 points or 1.5 per cent to close in the red at 25,886 last week. The index faces a resistance ahead at 26,000.

A strong break above this level can extend the corrective rally to 26,300 and 26,500 levels in the near term. Subsequent resistances are at 26,700 and 27,000 levels. Key supports are pegged at 26,000 and 25,700 levels. A fall below 25,700 can find support at 25,500 levels. The Nikkei 225 had declined 226 points or 1.3 per cent to close at 20,418 levels in the previous week. It faces resistance at 20,700. A strong rally above this level can take the index higher to 21,000 and 21,300 levels. Key supports are at 20,200 and 20,000 levels

Published on August 17, 2019
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