Technical Analysis

Index Outlook: Nifty tests a crucial barrier

Yoganand D | Updated on December 01, 2019 Published on November 30, 2019

All eyes on RBI policy meeting

Following a strong start, the benchmark indices — the Sensex and the Nifty — extended their rally to register new highs. However, profit-booking at higher levels capped the gains in the latter part of the week.

With the real GDP growth for the July-September quarter slumping to a 26-quarter low of 4.5 per cent, markets could remain jittery, and further erosion of last week’s gains is possible.

So, investors should remain cautious in the coming week. November auto sales number, the upcoming monetary policy meeting and rupee movement will also need a watch. On the global front, the progress of the US-China trade talks and the US November employment report will need monitoring.

Nifty 50 (12,056)

Last week, the Nifty managed to scale higher and record a new high at 12,158 on Thursday. But it gave up some of the gains as it fell 0.78 per cent on Friday due to weak global cues and profit-booking at higher levels. The Nifty surged 141 points, or 1.2 per cent, last week. Although the index closed above 12,000, it still continues to test the psychological resistance.

A rally above 12,100 can take the index higher to 12,200. However, the upside is temporarily limited to 12,200. An emphatic break above 12,200 is required to take the index higher to 12,400 and 12,500 in the short-to- medium term. The daily moving average convergence and relative strength indices (RSI) are displaying negative divergence, indicating that a trend-reversal is on the cards.

The weekly indicators are giving mixed cues. A conclusive plunge below the key short-term support level of 11,800 will confirm the reversal and drag the index down to 11,700. A further decline below this level will start weakening the short-term uptrend that has been in place since early October.

The next supports for the index are pegged at 11,550 and 11,440, which can provide base if the decline continues. Besides, a decisive break below the trend-deciding level of 11,500 will mitigate the uptrend. The subsequent supports are at 11,350 and 11,200 levels.

Medium-term trend: The index has been in a medium-term uptrend since it took support and began to trend upwards from the September low of 10,670. It currently tests a significant medium-term resistance in the 12,000-12,100 band with some signs of weakness in the uptrend. Therefore, investors should tread with caution at this juncture.

Only an emphatic break above this resistance band can take the index higher to 12,300 and 12,500 over the medium term.

On the other hand, if the Nifty reverses direction and tumbles below the vital medium-term support level of 11,500, it will bring back bearishness and weaken the uptrend. In such a scenario, the index can extend the down-move to test the key trend-deciding level at 11,200.

The subsequent supports to note are pegged at 11,000, 10,800 and 10,700 levels. Investors with a medium-term perspective can stay invested with a stop-loss at 11,200 and consider booking partial profits if the index fails to move beyond 12,100 levels.

Sensex (40,793.8)

Although the Sensex moved higher during the initial part of the past week, it slumped 0.8 per cent on Friday, giving away some of the initial gains. It advanced 434 points or 1 per cent. The key barrier at 41,000 appears to be restricting the upside as the index recorded a new high at 41,163 on Thursday and started to decline. The daily RSI as well as the moving average convergence divergence is displaying negative divergence, implying likely trend- reversal. Therefore, investors should remain on the sidelines at this juncture.

A fall below the near-term support at 40,500 can pull the index lower to 40,000. A further fall below this level will confirm the trend- reversal and drag the index down to 39,500 levels, with a minor halt at 39,750 levels. The subsequent support is at 39,000.

We reaffirm that the medium-term uptrend will be under threat only if the index declines below the crucial support level of 38,500. In that scenario, the index can trend lower to the ensuing support levels at 38,000 and 37,500 over the medium term.

On the other hand, an emphatic break above the current resistance level of 41,000 can the pave way for an up-move to 41,500 and then to 41,700 levels over the medium term.

 

 

Nifty Bank (31,946.1)

The Nifty Bank resumed the short-term uptrend and jumped 834 points, or 2.7 per cent, last week. After breaking a key resistance at 31,500, the index extended the rally and registered a new high at 32,157. But after shrinking marginally on Friday, the index continues to test the resistance at 32,000. The daily RSI is hovering near the overbought territory and the daily price rate of change indicator is weakening, implying trend-reversal. Hence, traders should tread with caution as long as it tests 32,000 levels.

A strong break above the level can push the index higher to 32,500 and then to 33,000 over the short- to medium-term horizon. But, an emphatic fall below the immediate support level of 31,500 can bring back selling pressure and pull the index lower to 31,000 initially. In such a scenario, traders can consider taking short positions with a fixed stop-loss.

A further slump below 31,000 can drag the index lower to 30,500 and then to 30,000 in the short term. We reiterate that only a strong fall below 30,000 will be a threat to the short-term uptrend. Key supports thereafter are at 29,500 and 29,000. Traders should remain cautious as long as the index trades in the band between 31,500 and 32,000.

Global cues

The Dow Jones Industrial Average was volatile and advanced marginally in the truncated week, gaining 175 point to close at 28,051. The index continued to test a key resistance at 28,000.A strong rally above this level can take it northwards to 28,250 and 28,500 levels.

The immediate support is at 27,800, but a conclusive fall below this level can drag the index lower to 27,400 and then to 27,000 in the short term.

Published on November 30, 2019
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