Technical Analysis

Index Outlook | Near-term trend looks positive for Sensex, Nifty 50

Yoganand D | Updated on November 07, 2020 Published on November 07, 2020

There are many factors that go into how your income from trading in stocks is taxed.   -  Getty Images/iStockphoto

But with the next barrier approaching, caution is warranted

The equity bellwether indices witnessed a strong rally last week, backed by a surge in banking stocks. The rally was also broad-based as mid- and small-cap stocks also climbed. The week ahead is crucial for domestic as well as global markets.

On the domestic front, key economic data such as CPI, balance of trade and industrial production are set to be released on Thursday; this can keep the indices choppy and can trigger profit-booking.

On the global front, Joe Biden is closing in on victory in the US Presidential elections; the final outcome of the election and its impact will dominate the headlines in the coming week. Investors should therefore remain cautious.

Nifty 50 (12,263.5)

The Nifty 50 index recently tested the 50-day moving average and a key support at 11,600 levels, and bounced up. It gained 621 points or 5.3 per cent in the past week.

Week ahead: In the previous week, the Nifty 50 had recovered the loss made in the week before and breached the significant resistance level of 12,000, which was a psychological barrier that capped it in mid and late October.

With the conclusive breakthrough of the vital resistance level of 12,000, the index has resumed its short- as well as intermediate-term uptrends. It now trades well above the 21- and 50-day moving averages. This rally has ended the three-week corrective decline.

The daily relative strength index (RSI) has entered the bullish zone, above 60-level, from the neutral region and continues to feature in this zone.

Moreover, the weekly RSI has entered the bullish zone, mitigating the negative divergence. Further, the daily as well the weekly price rate of change indicators have re-entered the positive terrain, implying buying interest.

As the index has managed to close above the resistance level of 12,200, it can continue to trend upwards and test the next resistances ahead at 12,400 and 12,500 in the coming weeks. T

hat said, if the index slips below the current base level of 12,200, selling interest on the back of profit-booking can drag it lower to 12,000.

A strong plunge below this base can pull the index further down to 11,800 and then to 11,600 over the short term. The supports thereafter are at 11,400 and 11,200.

Medium term: Following a three-week corrective phase, the Nifty 50 index has resumed the medium- to intermediate-term uptrend that has been in place since March low of 7,511. The decisive break-out of the crucial resistance level of 12,000 has underpinned the bullish momentum.

The index can extend the uptrend and test medium-term resistance at 12,430, which is the January peak. A further rally beyond this can take the index northwards to 12,600 and then to 12,900 over the medium term.

On the other hand, a conclusive fall below the psychological support level of 12,000 can bring back selling pressure and pull the index down to 11,500 initially.

A further decline below this base can drag the index lower to the next support at 11,000.

 

Sensex (41,893)

In the past week, the Sensex jumped 2,279 points, or 5.75 per cent, conclusively breaking through a significant resistance level of 41,000. This rally has strengthened the short- as well as intermediate-term uptrend in the index. If it manages to hold above either 41,700 or 41,500, the near-term stance will remain positive and it can test immediate resistance at 42,000.

Then, the index can reach 42,273, which is the January high.

A further rally above these barriers can take the index northwards to 42,500 and then to 43,000 over the medium term.

Conversely, if the index declines below the key base level of 41,500, profit-booking can emerge and drag it lower to 41,000 in the near term. In that case, this fall can be a corrective one as long as the index trades above 41,000.

But a conclusive slump below 41,000 can bring selling pressure and pull the index down to 40,500 and then to 40,000 over the short term. The subsequent supports levels are placed at 39,660 and 39,500. We reiterate that as long as the index trades above the trend-deciding level in the 36,500-36,600 zone, the medium- to intermediate-term uptrend will remain in place.

Investors with a long-term perspective can stay invested with a revised stop-loss at 36,000.

Nifty Bank (26,798.9)

The Nifty Bank index sky-rocketed 2,898 points, or 12 per cent, last week, outpacing the benchmark indices. While trending up, the index conclusively breached key resistances at 25,000 and 26,000.

With the recent rally, the index has resumed its short-term uptrend that had commenced from the late September low of 20,404. The daily as well as the weekly RSIs have entered the bullish zone from the neutral region.

Though the short-term trend is up for the index, it faces a crucial resistance ahead at 27,000.

Hence, traders with a short-term perspective should tread with caution at this resistance level. Inability to move beyond this barrier can drag the index down to 26,500 and then possibly to 26,000 over the short term.

But a strong break above 27,000 can reinforce the uptrend and accelerate the index higher to 27,500 and then to 28,000 levels; this could postpone the inevitable corrective decline to a later period. Traders with a short-term view, holding long positions, can consider partially booking profits if the index fails to move beyond 27,000 levels. Fresh long positions can be initiated above 27,000 with a fixed stop-loss.

On the other hand, key supports at 26,500 and 26,000 can provide cushion in case of a corrective decline that occurs from 27,000 levels. The supports below 26,000 are placed at 25,500 and 25,000.

Global cues

The Dow Jones Industrial Average index breached a key hurdle at 28,000 and the 21-day moving average at this level by gaining 1,821 points, or 6.87 per cent, in the past week. This decisive break above this resistance has taken to index to its immediate resistance level of 28,360.

A further rally can take it to the next barrier, which is at 28,560 in the coming weeks. Conversely, if the index drops below the crucial support level of 28,000, it can bring back selling pressure and pull the index lower to 27,800 and then to 27,500 levels. The key resistances beyond 28,560 are at 28,700 and 29,000 levels.

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Published on November 07, 2020
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