Technical Analysis

Key indices can remain range-bound

Yoganand D | Updated on January 06, 2019 Published on January 05, 2019

The third quarter earnings season, to kick-off this week, could lend direction to the market.   -

The Sensex and the Nifty tested a key barrier last week. Investors must tread with caution

Weak investor sentiment amid rising concerns over slowing global growth weighed on the domestic indices last week. Decline in December auto sales numbers too dampened sentiment. However, the US markets bounced back strongly on Friday gaining over 3 per cent, boosted by US Federal Reserve Chairman, Powell's reassuring comments of calibrated rate hikes.

Strong December jobs report also lifted sentiments. China’s central bank lowering banks’ reserve requirement could cheer Asian markets this week.

On the domestic front, the third quarter earnings season, to kick-off this week, could lend direction to the market. Macro-economic data and rupee movement will also be keenly watched.

Nifty (10,727.3)

The Nifty index has been choppy over the last two weeks, hovering around the 200-day average line at 10,800. Last week, the index fell by 132 points or 1.2 per cent. Since early November 2018, the Nifty index has been on a sideways consolidation phase in the wide range between 10,400 and 11,000.

The index needs to clearly move out of this range-bound movement to gauge the short-term trend.

The daily as well as weekly relative strength indices feature in the neutral region without any bias. Other indicators are showing mixed signs.

An emphatic break above the key barrier at 11,000 is needed to strengthen the bullish momentum and take the index northwards to 11,100.

A further break above this level is required to alter the downtrend and take the index higher to 11,300 and then to 11,500 in the coming months.

On the other hand, any corrective decline should find support in the 10,400-10,500 zone. An upward reversal from this zone will keep the index consolidating sideways in the aforementioned range.

But a conclusive plunge below the key base level of 10,400 can drag the index down to 10,300 and then to subsequent vital supports at 10,100 and 10,000 levels. An immediate resistance is placed at 10,800.

A rally above this level can take the index higher to test resistance at 11,000. Immediate support is at 10,600.

Medium-term trend: Since last August high of 11,760, the index has been on a medium-term downtrend.

As long as the index trades below 11,100, the downtrend will remain intact and the possibility of testing the key support at 10,000 will remain open. A decisive break above 11,100 will alter the downtrend and take the index up to 11,300 and 11,500 in the coming months.

Conversely, a conclusive tumble below the significant support at 10,400 will reinforce the downtrend and drag the Nifty index down to 10,000.

A further break below this base can drag the index lower to the subsequent supports at 9,900, 9,700 and 9,500 levels in the medium term.

Sensex (35,742)

The Sensex declined 381 points or 1 per cent last week amid volatility. Since early November 2018, the index has been on a sideways consolidation phase in the 34,600-36,600 zone.

Within this range, the index has been testing the significant resistance at 36,000 for more than a month.

Traders should tread with caution as long as the index trades in this range. A strong rally above 36,000 can take the index up to 36,600 in the near term.

A strong break above 36,800 is needed to alter the medium-term downtrend that has been in place since the August 2018 peak at 38,989. Such a break will pave way for an up-move to 37,000 and 37,400 over the medium term.

A corrective fall can find support at 35,400 or 35,000. But a slump below 35,000 can drag the index down to 34,600. That said, a break below 34,600 will reinforce the downtrend and drag the index lower to 34,500 and 34,000 in the short to medium term.

Nifty Bank (27,195)

Last week, the Nifty Bank index added 69 points or 0.26 per cent and outperformed the bellwether indices.

After testing the key resistance at 27,000 for more than a month, the index managed to close slightly above this level. Continuation of the uptrend can take the index up to 27,500, 27,700 and 28,000 in the upcoming weeks.

We reiterate that traders with a short-term horizon can consider taking fresh long positions on a rally above 27,000 levels with a fixed stop-loss.

Inability to move above 27,500 can keep the index range-bound between 27,000 and 27,500 in the near term. Key supports below 27,000 are placed at 26,700 and 26,500 levels.

A strong fall below the vital base level of 26,500 can drag the index down to 26,000 in the short term.

The short-term uptrend that has been in place since October 2018 will continue as long as the index trades above the 25,800-26,000 band. Supports to note below 25,800 are at 25,500 and 25,200 levels.

Global cues

Amid volatility, the Dow Jones Industrial Average gained 370 points or 1.6 per cent last week to close at 23,433.1. The index found support at around 22,000 in late December and bounced back strongly.

Since then, it has been on a near-term uptrend. On Friday, the index breached a key barrier at 23,000 and continued to trend up. Next key resistances are at 24,000 and 24,500.

A further break above 24,500 will alter the short-term downtrend and take the Dow Jones higher to 25,000 and 25,500 over the medium term. On the other hand, a key support is at 23,000.

A fall below this level can find support at 22,500 and then at 22,000 in the short term. Subsequent key supports are at 21,700 and 21,500.


Published on January 05, 2019

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