Technical Analysis

Market poised at a critical resistance zone

Yoganand D | Updated on November 10, 2019

The Sensex and the Nifty 50 paused last week; traders should remain watchful

Following a positive start, both the Sensex and the Nifty were choppy through last week and ended marginally in the positive territory. Respective key resistances are limiting the upside now, hence investors should be on alert. Both the mid- and small-cap indices retreated last week and closed in the red, after testing key resistances. Investors should remain watchful in these segments as well. Further weakness this week can maintain the selling pressure intact.

On the global front, the US-China trade war needs to be closely monitored along with US retail sales and Powell’s testimony.

Nifty 50 (11,908.1)

After a sharp rally the week before, the Nifty 50 was choppy, testing a significant resistance at 12,000 last week, and closed marginally in the positive, inching 17 points or 0.15 per cent. The index tested this key medium-term resistance at 12,000 and formed a spinning top candlestick pattern in the weekly chart, depicting indecisiveness. Hence, traders should tread with caution in the coming week. The daily relative strength index is retreating from the overbought territory and hovers in the bullish zone. The weekly RSI has just entered the bullish zone from the neutral region. Although the daily price rate of change indicator hovers in the positive terrain , it shows signs of negative divergence, indicating that near-term correction could be on the cards.

The short-term trend is up for the Nifty, but there is lack of strength. A strong rally above the current resistance level of 12,000 can bring back bullishness and take the index higher to 12,100 and then to 12,200 levels. That said, if the index slips below the immediate support at 11,800, it can slip to 11,700 on the back of profit-booking and selling pressure. Subsequent supports are at 11,550, 11,490 and 11,440. A strong close below 11,500 will make the short-term trend negative. Supports thereafter are placed at 11,350 and 11,200 levels.

Medium-term trend

The medium-term trend has been up for the Nifty since it reversed higher from the September low of 10,670. As the index tests a key medium-term resistance in the 12,000-12,100 band, a decisive break above this zone can push it northwards to the next vital resistances at 12,300 and 12,500 in the medium term. But a conclusive plunge below the key medium-term base level of 11,500 will start weakening the uptrend. In that case, the index can decline to test the key trend-deciding level at 11,200. A slump below this base will be a threat to the uptrend and will alter the trend downwards. A further decline below the 11,000-mark can drag the index lower to 10,800 and then to 10,700 levels over the medium term. Investors can consider taking profit off the table if the index fails to move above 12,100 levels.

Sensex (40,323.6)

Amid volatility, the Sensex managed to advance marginally by 158 points or 0.4 per cent in the previous week. Though the index recorded a new high at 40,749 on Friday, it fell 330 points, or 0.8 per cent, in that session and ended below 40,500 levels. A further decline below 40,000-mark can weaken the recent upmove and drag the index lower to 39,500 levels with a minor pause at 39,750 levels. Short-term supports below 39,500 are at 39,300 and 39,000. On the upside, a decisive break above 40,500 can push the index higher to 40,725 and then to 40,900 in the ensuing weeks.

A decline below 38,500 will be a threat to the medium-term uptrend and the index can gradually decline to subsequent base levels at 38,000 and 37,500 levels. A significant medium-term support to note is pegged at 37,000.

Nifty Bank (30,749.4)

Last week, the Nifty Bank outpaced the benchmark indices and advanced 418 points, or 1.4 per cent. But the index tested a key resistance at 31,000 on Friday and failed to close above this level.

The daily relative strength index (RSI) is approaching the overbought territory while the weekly RSI is on the brink of entering the bullish zone from the neutral region. Besides, the daily price rate of change indicator displays negative divergence, signalling weakness as well as possibility of a near-term trend reversal. So traders with a near-term perspective should tread with caution as long as the index tests the 31,000 mark.

An emphatic break above this barrier will underpin the uptrend and take the index northwards to 31,500 and 32,000. Such an upmove will be the cue for taking long positions with a fixed stop-loss. Having said that, if the index reverses from the current levels and declines below 30,000, it will start weakening the uptrend. In that scenario, traders can go short with a fixed stop-loss. Subsequent supports at 29,500 and 29,000 can provide cushion.

Global cues

The Dow Jones Industrial Average gained 333 points, or 1.2 per cent, last week, breaking above a key barrier at 27,400 to close at 27,681.2. But the daily indicators are showing signs of weakness, which needs a cautious approach.

A fall below the immediate support level of 27,400 can pull the index lower to 27,200 and then to 27,000 levels. Continuation of the uptrend can take the index higher to 27,800 and 28,000 levels in the short term.

Tracking the US market, the Nikkei 225 index also gained in the previous week, but it encountered a vital resistance at 23,500. A strong rally beyond this level can push it higher to 24,000. Key supports below 23,000 are at 22,700 and 22,000.


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Published on November 09, 2019
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