Technical Analysis

Indices trade above a key base

Yoganand D | Updated on March 12, 2018 Published on March 10, 2018

The Sensex and the Nifty have supports and there are chances of a corrective rally

The continued slump in the PSU banking stocks had de-railed domestic markets last week, with the PSU Bank index plunging 5.4 per cent. A slew of macro data releases lined up for next week will influence the movement of the market. The Index of Industrial Production data for January 2018 is due to be released on Monday. Also, inflation data for February is expected to be released on the same day. Thereafter, the focus will be on the wholesale price index (WPI) inflation, which will be released on Wednesday.

On Friday, US stocks witnessed strong rally on the back of the US President Donald Trump’s willingness to hold talks with his North Korean counterpart. The surge in the Nasdaq Composite propelled US stocks on Friday. Domestic market could therefore begin the week on a positive note.

Nifty 50 (10,226.8)

Last week, the Nifty index tumbled 231 points or 2.2 per cent, breaching the key immediate support level of 10,300.

Short-term trend: With the recent fall, the Nifty index has moved out of the sideways range between 10,300 and 10,600. It appears to have resumed the downtrend that has been in place from the new high recorded at 11,171 in late January. Currently, the short-term trend is down. However, the index has a key medium-term support in the band between 10,000 and 10,100, which can provide support in the near term.




A corrective up-move is possible and the index can encounter resistance at either 10,360 or 10,500 in the coming weeks. An emphatic breakthrough of the significant resistance level of 10,600 is needed to weaken the downtrend and take the index higher to 10,700 and 10,800 levels. However, inability to stay above the key support level of 10,000 and a downward breach of this level can drag the index down to 9,800 and then to 9,700 levels. Either of these levels can cushion the index.

Medium-term trend: Since change of direction in late January, the medium-term trend, which is down, seems to continue. However, a strong plunge below the 9,950 is required to confirm the trend reversal. A conclusive downward breach of this base level can pull the index down to 9,560 and 9,170 in the medium term horizon. But a bounce back from the significant support at around 10,000 can result in a sideways consolidation phase in the 10,000-11,200 range for a while before the index take a clear direction.

Sensex (33,307.1)

In the previous week, the Sensex plunged 739 points or 2.2 per cent and has resumed its downtrend.

Short-term trend: The index breached the lower end at 33,500 and continued its decline last week. But it tested the key support at 33,000 and began to make a corrective up-move that lacks strength.

A decisive downward breach of this base can pull the index down to 32,600 and then to 32,400 levels in the ensuing weeks. Next significant supports are at 32,200 and 31,800. Having said that, the corrective up-move of the index can encounter resistances in the 33,800-34,000 band or at 34,600 in the short term. An emphatic rally beyond 34,600 is required to take the index northwards to 35,000 and 35,375 in the medium term.

Medium-term trend: Last week, the index breached the lower end of the range at 33,500 and extended the down-move. A strong decline below the key medium-term support level of 32,400 will alter the medium-term uptrend and pull the index down to the subsequent key support level of 31,800 and 31,650.

Only a strong decline below the crucial support level of 31,000 will change the medium-term trend to negative. Next key supports are at 30,600 and 30,200. Key resistances above 34,600 are at 35,200 and 36,000.

Nifty Bank (24,296.4)

The Bank Nifty plummeted 606 points or 2.4 per cent in the previous week, breaking a key support at 25,000. But the index now hovers above the next key support at 24,000. It can decline and test this support in the near future. An upward reversal can encounter resistances at 24,500 and then at 24,800. A break above the 25,000 level can extent the corrective rally to 25,500 and 25,800 levels.

Traders should tread with caution as long as the index trades above the 24,000 base level. But a slump below this level will reinforce the bearish momentum and pull the index down to 23,600 and 23,500. In that scenario, traders can initiate fresh short positions with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average gained 797 points or 3.3 per cent to close the previous week at 25,335.7. The index faces resistance at 25,500 and a strong rally above can take it to 25,800 and then to 26,000 in the short term. But failure to move beyond 26,000 can keep the index wavering in the 24,500-26,000 range for a few weeks. Key resistances above 26,000 are at 26,300 and 26,600 levels. Supports are at 25,500 and 24,500.

Published on March 10, 2018
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