Technical Analysis

Nifty hovers over a key support

Yoganand D | Updated on December 07, 2019 Published on December 07, 2019

Both the Nifty and the Sensex have begun to decline; investors should tread with caution

The bellwether indices, the Sensex and the Nifty, were choppy in the initial part of the week, but subsequently slumped on the back of selling interest and profit-taking as the Reserve Bank of India kept the key interest rates unchanged and lowered its GDP growth forecast to 5 per cent. Stocks in rate-sensitive sectors such as banks and housing finance saw strong declines in the latter part of the week. The RBI also raised its inflation forecast. In the coming week, the movements of rupee and crude oil price need to be watched.

On the global front, the Dow Jones and S&P 500 erased losses for the week and surged strongly on Friday, on blockbuster jobs data. The US-China trade talks need to be monitored closely as 2019 draws to a close.

Nifty 50 (11,921.5)

After a positive start in the past week, the Nifty began to head southwards, witnessing selling pressure at higher levels and profit-booking. Testing the key resistance in the band between 12,000 and 12,100, the index retreated and slumped 134 points or 1.1 per cent last week. It closed below the 21-day moving average on Friday, showing signs of weakness. Moreover, the daily moving average convergence and relative strength indices (RSI) have been displaying negative divergence, which signals a possible trend-reversal.

The daily RSI features in the neutral region and the weekly RSI is on the brink of entering the neutral region from the bullish zone. Also, the daily price rate of change indicator is on the verge of entering the negative terrain — such an entry will imply selling interest. With the current weakness in the index, it can test an immediate support at 11,800 in the near term. An emphatic tumble below this level will confirm the trend-reversal and pull the index down to 11,700.

A further decline under 11,700 will further weaken the short-term uptrend that has been in place since early October. Subsequent supports are at 11,550 and 11,440 levels.

A strong fall below the trend-deciding level of 11,500 is needed to mar the uptrend and drag the index lower. The next key levels are at 11,350 and 11,200 levels.

On the other hand, an upward reversal from the immediate support level of 11,800 can keep the index range-bound between 11,800 and 12,100 for a while. A decisive rally above 12,100 can push the index northwards to 12,200 which could be the upside limit.

For resumption of the uptrend, the index needs to break above 12,200 decisively, that can pave way for an up move to 12,400 and 12,500 in the short-to-medium term.

Medium-term trend: The significant medium-term resistance in the 12,000-12,100 zone had capped the rally in the index last week. However, the medium term uptrend that has been in place from the September low of 10,670 continues to be intact. A fall below 11,500 will start threatening the uptrend and drag the index lower. In that case, it can decline to test the key trend-deciding level at 11,200.

The next vital supports are placed at 11,000, 10,800 and 10,700 levels. We reiterate that investors with a medium-term perspective can remain invested with a stop-loss at 11,200 and consider taking partial profits at this juncture as the index retreats from 12,100 levels. A strong break above 12,100 can push the index northwards to 12,300 and 12,500 over the medium term.




Sensex (40,445.1)

The Sensex fell 348 points, or 0.85 per cent, last week on the back of selling interest. Any further decline can test the immediate support at 40,000 in the coming week. Both the daily RSI and the moving average convergence indicator are displaying negative divergence, which implies a trend-reversal. However, a decisive fall below the vital base level of 40,000 is required to confirm the trend- reversal and drag the index lower to 39,500 levels, with a minor pause at around 39,750 levels. The key support thereafter is at 39,000.

The medium-term uptrend that has been in place since late September will be under threat only if the index falls below the key support level of 38,500. Continuation of the down-move can drag the index lower to the subsequent support levels of 38,000 and 37,500 over the medium term. Conversely if the index rebounds from 40,000 it can remain sideways in the range between 40,000 and 41,000 for a while.

A strong break above 41,000 can underpin the uptrend and take the index higher to 41,500 and then to 41,700 levels over the medium term.

Nifty Bank (31,341.5)

After testing the significant resistance at 32,000, the Nifty Bank started to decline in the latter part of the week. It slumped 604 points, or 1.9 per cent, in the previous week. This fall has breached the immediate support at 31,500 which had provided base during the mid-week. The index can extend the down-move in the near term and test the next support at 31,000.

The daily price rate of change indicator displays a prolonged negative divergence, implying trend-reversal. The daily RSI has entered the neutral region and the weekly RSI is likely to enter this region from the bullish zone.

A further plunge below 31,000 can pull the index down to 30,500 and then to 30,000 over the short term. We restate that only a strong decline below the key base level of 30,000 will start threatening the short-term uptrend. Subsequent key supports are pegged at 29,500 and 29,000 levels. Traders with a short-tem perspective can initiate fresh short positions if the index fails to move beyond 31,500 with a fixed stop-loss.

On the upside, the key resistances at 31,500 and 31,700 need to be surpassed, so that the index can retest a crucial barrier at 32,000 in the short term. A clear breakthrough of this barrier will take the index northwards to 32,500 and then to 33,000 over the short- t- medium term.

Global cues

Last week, the Dow Jones Industrial Average was once again choppy — after declining initially, it bounced back strongly to end the week almost flat. It has fallen marginally by 34 points, or 0.15 per cent, to 28,015.

It can continue to trade sideways if it fails to move beyond 28,100 levels. The index can be range-bound between 27,500 and 28,100. The immediate support is at 27,750. A strong break above 28,100 can take the index northwards to 28,250 and 28,500 levels in the short term.

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Published on December 07, 2019
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