Technical Analysis

Index Outlook: Key indices show sign of optimism

Yoganand D | Updated on September 15, 2019 Published on September 14, 2019

Last week, the Sensex and the Nifty advanced over 1 per cent, backed by buying interest

In the truncated week , the Sensex and the Nifty began on a choppy note and extended their rallies, taking positive cues from the global markets. Moreover, the indices continued to go up on Friday on hopes of rate cut due to moderating inflation. The IIP growth rebounded in July to 4.3 per cent after a fall in June, when it recorded 1.17 per cent, while the retail inflation rose to 3.21 per cent in August, compared with 3.15 per cent in July. A strengthening rupee also helped the indices marginally.

On the global front, the ECB stimulus and optimism over US-China talks pushed the global markets higher last week.

This week, the Bank of England (BoE) and the US Federal Reserve are set to hog the limelight and provide direction to the markets.

Nifty 50 (11,075.9)

The Nifty gained 129 points or 1.18 per cent last week. Taking support at around 10,900, it managed to close above the 11,000-mark.

However, the index faces key resistances at 11,100 and 11,200, where the 200-day moving average hovers.

A conclusive break above these barriers will reinforce the bullish momentum and take the Nifty out of the sideways consolidation band between 10,800 and 11,200 that has been in place since late July this year. Such an up-move will strengthen the rally and take the index up to 11,400 and 11,500 levels in the short term. It will alter the short-term downtrend that has been in place for over the past two months.

 

 

 

Failure to break above the immediate resistances will retain the sideways movement in the band between 10,800 and 11,200 for a while.

The daily as well as the weekly relative strength indices feature in the neutral region.

After a dip, the daily price rate of change indicator has re-entered the positive terrain, suggesting buying interest.

On the other hand, a fall beneath the lower boundary of the range at 10,800 can bring back bearishness and drag the index down to the subsequent base level of 10,600 levels in the short to medium term horizon.

Medium-term trend: There is no major change in the medium-term trend that has been down since registering a new high at 12,103 in early June. The Nifty continues to move sideways within the downtrend, but with a positive bias.

We reaffirm that an emphatic break above the trend-deciding level of 11,500 will alter the downtrend. It that case, the index can trend upwards to the next vital barriers at 11,700 and 11,800 over the medium term. The psychological level of 12,000 is the subsequent medium-term resistance to watch out for.

Conversely, if the index tumbles below the near-term support level of 10,800, the medium-term downtrend will be reinforced. Subsequent supports at 10,600, 10,400 and 10,100 can come to the rescue.

Sensex (37,384.9)

The 30-share sensitive index advanced 403 points or 1.1 per cent last and ended above the 37,000-mark. However, the Sensex continues to move sideways in the band between 36,600 and 38,000.

A break above the current resistance at 37,400 can pave way for an up-move to 38,000, which is the upper boundary of the sideways range.

We reiterate that a clear breakout of 38,000 will change the short-term downtrend and take the index up to 38,400 and 38,600.

But to alter the medium-term downtrend that has been in place from the June high of 40,312, the index needs to decisively breach the vital barrier at 38,600. The medium-term resistances above 39,000 are at 39,400 and 40,000 levels. Nevertheless, inability to move beyond 38,000 can keep the index consolidating sideways.

In that case, a decline to test the support at 36,600 cannot be ruled out. A slump below this base can pull the index down to 36,400 and 36,000 levels in the short term. Supports thereafter are at 35,500 and 35,000. Investors with a medium-term perspective can remain invested with a stop-loss at 36,400.

Nifty Bank (28,098.75)

Last week, after experiencing buying interest, Nifty Bank surged 850 points or 3.1 per cent, outpacing the bellwether indices. The index had breached a key resistance at 27,500 and managed to finish the week above 28,000 levels. The daily relative strength index charts upwards in the neutral region and the weekly RSI has entered the neutral region from the bearish zone.

Besides, the daily price rate of change indicator features in the positive terrain, signifying buying interest and the weekly price rate of change indicator is recovering from the oversold territory. Continuation of the up-move can prolong the corrective rally to 28,500 in coming week. A decisive breakthrough of 28,500 can push the index up to the next resistance levels at 29,000 and 29,500.

That said, to alter the medium-term downtrend, the index needs to emphatically move beyond the 30,000 resistance. Such an up-move can take the Nifty Bank northwards to 30,500 and 31,000 in the medium term.

Alternatively, a slump below the immediate support level of 27,500 can bring back bearishness and drag the index down to 27,000 and 26,500 levels.

A further decline below this base can extend the down-move to the subsequent support levels of 26,000 and 25,500 levels over the short term.

Traders can buy in declines with a stop-loss at 27,500 and consider exiting the positions if the index struggles to move above 28,500 levels.

Published on September 14, 2019
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