Technical Analysis

Index Outlook | Key barriers limit the rally in Sensex, Nifty 50

Yoganand D | Updated on September 19, 2020 Published on September 19, 2020

Both Sensex and Nifty 50 stayed flat, but the bias is turning negative, so tread with caution

The past week was a volatile one, where the benchmark indices — the Sensex and the Nifty 50 — were choppy and finished flat.

In its recent meeting, the US Federal Reserve indicated that it will not raise rates for a few years. The global markets witnessed minor correction thereafter. In the coming week, the focus will be on manufacturing and services PMI (Purchasing Managers’ Index) data and the Bank of Japan (BoJ) policy minutes.

The domestic indices could remain choppy ahead of the September derivative expiry.

Nifty 50 (11,504.9)

Amid volatility, the Nifty 50 managed to climb 40 points, or 0.35 per cent, last week.

Though the index moved above the immediate resistance level of 11,580 and marked an intra-week high at 11,618, it failed to sustain at higher levels. The index continues to test resistance at 11,580, and the corrective phase is likely to extend to the coming week as well.

Week ahead: The Nifty 50 is marginally hovering above the 21-day moving average. If the index fails to move beyond 11,580 and slumps below the immediate support level of 11,400, it can decline to 11,300 levels.

A key support thereafter is placed in the band between 11,000 and 11,100 that could act as a short-term base and cushion the index. That said, an emphatic plunge below this support zone can drag the index lower to 10,800; the 200-day moving average is poised around this level.

As long as the index trades above 10,800 levels, the short-term uptrend will remain in place. A conclusive plunge below this level can alter the trend and pull the index down to 10,600 and then to 10,500 levels over the short term.

On the other hand, a clear break above the current hurdle at 11,580 can take it higher to 11,630. A further break above this level can push the index higher to test the recent high of 11,794 in the ensuing weeks.

Medium term: As far as the medium term is considered, the trend has been up since the index recorded a low of 7,511 this March. This uptrend will continue to stay in place as the index hovers above the vital long-term support level of 10,000.

The weekly relative strength index (RSI) currently features just above the 60 level; a slip below this level can pull it to the neutral region.

Whereas, the moving average convergence divergence (MACD) on the weekly chart hovers in the positive territory.

A decisive breakthrough of a significant resistance at 11,800 can accelerate the index higher to 12,000. A strong rally above this barrier will reinforce the bullish momentum and take the index northwards to the lifetime high of 12,430 over the medium term.

Conversely, a tumble below the crucial base level of 10,000 can pull it lower to 9,800 and then to 9,600 in the medium term. The key supports to watch are placed at 11,000, 10,600 and 10,200.

 

 

Sensex (38,845.8)

The Sensex underperformed the Nifty 50 and finished the week almost on a flat note. Recently, the index had taken support at around 38,000 and continued to trend upwards. But it met with a barrier at 39,000 last week and continued to test this level.

We reiterate that a breakthrough of this hurdle will strength the medium-term uptrend and take the index higher to 39,500 and then to 40,000 in the short term. If the upmove exceeds beyond the psychological resistance level of 40,000, it will attract bullish momentum and pave the way for an upmove to 40,700 and then to 41,000 over the medium term.

On the downside, a slip below the immediate base level of 38,000 can pull the index down to 37,700 initially. A further slump below this support can drag the index down to 37,500 and 37,000 levels.

A vital support thereafter is placed at 36,600, which is a crucial short-term trend-deciding level. Investors with a long-term horizon can remain invested with a stop-loss at 32,900.

Nifty Bank (22,031)

The Nifty Bank declined 1.3 per cent on Friday, strengthening the short-term downtrend. For the week, the index tumbled 448 points, or 2 per cent, on the back of selling interest. The near-term outlook is negatively biased.

The index now tests a key support at 22,000. A conclusive fall below this level will underpin the short-term downtrend and drag the index lower to 21,500 and then to a crucial support that is placed at 21,000.

The indicators are charting downwards, implying weakness.

Traders with a short-term perspective can initiate fresh short positions on a decline below 22,000 with a fixed stop-loss.

Having said that, the Nifty Bank needs to decisively move beyond the significant medium-term resistance at 23,000 to bring back bullish momentum and take it higher. This level has been capping the upside.

Such a break above this barrier can take the index upwards to 23,500 and then to 24,000 over the medium term.

Global cues

Last week, the Dow Jones Industrial average was choppy and closed almost on a flat note at 27,657.4. The index continues to trade above a significant support level of 27,500.

A strong decline below this support will reinforce the near-term downtrend and drag the index down to 27,300 and then to 27,000 in the coming weeks.

The subsequent support is placed at 26,600.

Conversely, if the index decisively moves beyond the immediate resistance at 28,000, it can move higher to 28,430 and to 28,700 in the short term.

The next resistances are at 29,000 and 29,200.

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Published on September 19, 2020
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