Technical Analysis

Index Outlook | Key barriers limit upside in Sensex, Nifty

Yoganand D | Updated on February 16, 2020

Representative image   -  ISTOCKPHOTO

Both the Sensex and the Nifty remain flat and continue to test resistance zones

The domestic equity market indices — the Sensex and the Nifty — remained flat last week despite a rally in the US market.

Global indices such as the Nikkei and the FTSE ended the week in the red, amid volatility.

On the domestic front, a contraction in the December industrial output and a rise in CPI inflation kept benchmark indices choppy. In the coming truncated week, the Sensex and the Nifty could remain volatile and look for a clear directional move, as the indices are poised at crucial zone.

On the global front, rising crude oil price and escalation in the coronavirus outbreak could add pressure on the US stocks.

Also, the minutes of the US Federal Reserve meeting will be on investors’ radar.



Nifty 50 (12,113.4)

The Nifty index was choppy last week and advanced marginally, gaining 15 points, or 0.13 per cent. The index continues to test a vital resistance in the band between 12,100 and 12,150; the 61.8 per cent Fibonacci retracement of the previous downtrend coincides with this band.

Besides, the index tests the 21- and 50-day moving averages within the current resistance band. Both the daily and the weekly relative strength indices (RSIs) are featuring in the neutral region, failing to lend a clear direction. But the daily as well as the weekly price rate of change indicators have entered the positive terrain, implying buying interest.

That said, an emphatic breakthrough of the resistance band at 12,150 is required to change the downtrend and push the index northwards to 12,250 and 12,350 levels in the ensuing weeks.

A further rally above these levels can accelerate the up-move to the subsequent resistance in the 12,450-12,500 band.

On the other hand, a fall below the immediate key support level of 12,000 and 11,850 can lead to resumption of the downtrend.

In such a scenario, the selling pressure will be back and the index can decline to 11,750 and then to 11,600 levels over the short term. A further decline under the base level of 11,600 will reinforce the bearish momentum and drag the index lower to 11,500.

Medium-term trend: The index currently tests a crucial resistance at 12,150. We reaffirm that a conclusive break above this hurdle can bring back buying interest and push the index northwards to 12,300 and 12,500 in the coming weeks.

An emphatic break above 12,500 can push the index northwards to 12,700 and then to 12,900 levels in the medium term. Conversely, if the index declines below the support level of 11,700, it can extend the down-move to the next support at 11,500. We re-affirm that the trend-deciding level is at 11,300 and a strong fall below this level can drag the index down to 11,000, 10,800 and 10,700 over the medium term. Investors can remain invested with a stop-loss at 11,300 levels.

Sensex (41,257.7)

Following a sharp rally in the week before, the Sensex was volatile and closed marginally higher by advancing 116 points, or 0.28 per cent, in the previous week. It has formed a spinning candlestick pattern that implies indecisiveness. The index now tests a resistance at 41,500. A break above this barrier can push the index higher to the 42,000 levels in the short term.

A further rally above this level can meet resistance at 42,500 over the medium term.

Failure to move beyond 41,500 can keep the index moving sideways with a negative bias. In such a scenario, the key near-term supports at 40,700 and 40,500 can cushion the index.

However, a plunge below the second support at 40,500 can bring back selling pressure and drag the index lower to the psychological support level of 40,000 in the ensuing weeks. The subsequent supports are at 39,500 and 39,000.

The medium-term uptrend that has been in place since September 2019 will remain intact as long as the index trades above 39,000. An emphatic decline below this base is required to alter the trend downwards and pull the index lower to 38,500 and 38,000 over the medium term.

Nifty Bank (30,834.8)

Last week, the Nifty Bank index tumbled 367 points, or 1.2 per cent, underperforming the bellwether indices. It tested a key resistance at 31,500 and reversed down. The 50-day moving average at around 31,500 also acted as a key resistance. Both the daily and the weekly RSIsare hovering in the neutral region. The daily price rate of change indicator is on the brink of slipping into the negative terrain, signifying selling interest.

As mentioned in this column, the crucial resistance at 31,500 needs to be breached to alter the short-term downtrend that has been in place since encountering a key resistance at 32,500 in last December.

Such a breakthrough can push the index higher to 32,000 and 32,500 in the coming weeks.

As the index is reversing down from the key barrier at 31,500, it could test a support at 30,500.

A plunge below this base will intensify the bearish momentum and pull the index down to 30,000 and then to 29,600 in the short term.

Traders with a short-term view can consider going short only if the index declines below 30,500 with a fixed stop-loss. The next support below 29,600 is at 29,000.

Published on February 15, 2020

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