Technical Analysis

Index Outlook | Near-term stance for Sensex, Nifty 50 turning bullish

Yoganand D | Updated on October 04, 2020 Published on October 03, 2020

Both the Sensex and the Nifty 50 witnessed strong rallies last week

The domestic bellwether indices — the Sensex and the Nifty 50 — continued their upwards journey last week, backed by a strong rally in the BSE Bank and the Nifty Bank indices. The indices managed to surpass a key barrier recently, but the resistances ahead may limit the rally.

The pick-up seen in September auto sales could boost auto stocks and keep the bullish momentum in place for the near term. Rupee movement and declining global crude oil price need to be watched.

On the global front, the US Federal Reserve’s meeting minutes in the coming week can lend direction for the global markets, apart from updates on the US President’s health.


Nifty 50 (11,416.9)

The Nifty 50 index surpassed a minor pause that tested a key resistance at 11,300, as well as the 50-day moving average by gaining 1.5 per cent on Thursday. In the truncated week, the index jumped 366 points, or 3.3 per cent.

Week ahead: In late September, the index took support at around 10,800 and did a U-turn.

It has been on a near-term up-move over the past one week and the recent rally has exceeded the 21- as well as the 50-day moving averages (DMAs). The index managed to close above a barrier at 11,400. However, it now faces vital resistances ahead at 11,580 and 11,630 levels. An emphatic breach of the second resistance can push the index northwards to test the recent high of 11,794 in the ensuing weeks.

The daily relative strength index (RSI) is charting higher in the neutral region towards the bullish zone and the weekly RSI is likely to re-enter the bullish zone. The daily price rate of change indicator is on the brink of entering the positive terrain — such a move will imply buying interest.

Conversely, failure to move beyond the crucial resistance levels of 11,580 and 11,630 will keep it consolidating sideways in a wide range between 11,000 and 11,630 for a while. The immediate support is placed at 11,300.

A decisive slump below this base can pull the index down to 11,150 and then to 11,000.

A strong decline below the psychological support level of 11,000 can drag the index lower to 10,800. An emphatic fall below this base will reinforce the downtrend that had commenced from the late August high of 11,794.

The next supports are placed at 10,600 and 10,500 levels

Medium term: Last week’s strong rally has brought back some positive impetus into the medium-term uptrend that has been in place since the March low of 7,511. Having said that, the index faces a key medium-term hurdle at 11,500.

A breach of this level and then a strong break above the key resistance level of 11,800 will bring back bullish momentum.

In such as a scenario, the index has the potential to move northwards to 12,000.

We reiterate that a strong rally above this barrier will reinforce the uptrend and take the index higher to a lifetime high of 12,430 over the medium term.

On the downside, the index has a vital key support at 11,000.

A clear weekly close below this level can drag the index lower to the next medium-term support levels of 10,600 and 10,200.

A decisive fall below the strong support level of 10,000 can drag it lower to 9,800 and then to 9,600 in the medium term.

Sensex (38,697)

The Sensex jumped 1,308 points, or 3.5 per cent, last week.

Although it tested a key barrier in the band between 37,900 and 38,000 for a few sessions, it conclusively breached this level on Thursday by gaining 1.65 per cent. This rally has surpassed both the 21- and 50-DMAs conclusively.

But the Sensex has a crucial resistance ahead at 39,000 that needs to be breached to strengthen the medium-term uptrend and take it higher to 39,500 and then to 40,000 over the coming weeks.

We reiterate that a strong rally above the psychological resistance level of 40,000 will take the index to the next resistance levels of 40,700 and 41,000 over the medium term.

On the other hand, a slump below the immediate support level of 38,000 can bring back selling pressure and pull the index lower to 37,500 and then to 37,000. But a further decline below the key support of 37,000 can drag the index lower to 36,500.

We restate that the index has a key short-term, trend-deciding level in the 36,500-36,600 zone.

A plunge below this zone can mitigate the short-term uptrend and drag it lower to 36,000 in the coming weeks.

Investors with a long-term horizon can remain invested with a revised stop-loss at 33,800.

Nifty Bank (22,246)

Last week, the Nifty Bank index outperformed the bellwether indices and jumped, gaining 1,263 point, or 6 per cent, mainly supported by 3.7 per cent gains on Thursday. This rally has broken the key resistance at 22,000 and the 21-day moving average.

But the daily RSI is hovering in the neutral region and the price rate of change indicator is in the negative territory.

A strong rally above the immediate resistance level of 22,400 can strengthen the bullish momentum and take the index higher to 23,000, which is a crucial medium-term hurdle.

As long as the index trades below the resistance of 23,000, the downward pressure will remain in place.

Therefore, traders with a low risk appetite should consider initiating fresh long positions above this level. Whereas, high-risk traders can go long above 22,400 and partially book profits at around 23,000.

A decisive breakthrough of 23,000 can take the index northwards to 23,500 and then to 24,000 over the medium term.

Global cues

Last week, the Dow Jones Industrial Average climbed 508 points, or 1.87 per cent, to close at 27,682.8. The index managed to breach the near-term resistance at 27,500.

However, it now faces the next hurdle at 28,000. A strong break above this level can push the index higher 28,430 and then to 28,700 levels.

Conversely, if the index slips below the base level of 27,500, it can be dragged lower to test the next support at 27,000.

A decisive further decline below this support can drag the index down to 26,600.

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Published on October 03, 2020
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