Technical Analysis

Index Outlook: Sensex and Nifty at all-time highs

Yoganand D | Updated on December 22, 2019 Published on December 21, 2019

The key indices have surpassed key barriers

Tracking global markets, the Sensex and the Nifty continued to trend upwards, surpassing their key resistance levels in the past week.

The encouraging US economic data and optimism over international trade deals boosted the US market indices, recording highs last Friday.

But a marginal depreciation in rupee and December derivatives expiry can keep the benchmark indices choppy in the truncated week.

Investors should tread with caution in the coming week.

Nifty 50 (12,271.8)

The Nifty surpassed the key resistance in the band between 12,000 and 12,100 by recording a 185-point gain, or 1.5 per cent, last week. The index recorded a new high at 12,293.9 on Friday.

However, it faces the next hurdle at 12,300. A strong rally beyond this level can take the index northwards to 12,400 and 12,500 levels in the ensuing weeks.

Currently, the index trades well above its 50- and 200-day moving averages. Both the daily and the weekly relative strength indices (RSI) feature in the bullish zone, backing the upmove.

Besides, the daily as well as the weekly price rate of change indicators hover in the positive terrain.

Any corrective decline can find a support initially at 12,100 and then at the 12,000-mark.

But a decisive slump below 12,000 on the back of profit-taking can drag the index lower to 11,850 levels.

An emphatic fall below 11,850, where the 38.2 per cent fibonacci retracement level of the short-term uptrend coincides, will start threatening the short-term uptrend that has been in place from early October.

In such a scenario, the index can decline to test the subsequent support at 11,700. Next key supports below this level are placed at 11,550 and 11,440 levels.

The index needs to decisively break below the trend-deciding level of 11,500 to alter the short-term uptrend. The ensuing supports are at 11,350 and 11,200.

Medium-term trend: The Nifty has strengthened the medium-term uptrend that has been in place since the September low of 10,670 by conclusively moving beyond the significant resistance in the 12,000-12,100 band.

A strong breach of the immediate resistance level of 12,300 will the pave for an upmove to 12,500 over the medium term.

On the other hand, a failure to move beyond this level and a downward reversal can pull the index down to 11,800 levels.

We reiterate that a decline below 11,500 will start threatening the medium-term uptrend. The key trend-deciding level for the medium-term uptrend is at 11,200.

An eventual fall below this level can drag the index lower to the next supports placed at 11,000, 10,800 and 10,700 levels.

Investors with a medium-term horizon can stay invested with a revised stop-loss at 11,300.

 

 

Sensex (41,681.5)

With the ongoing bullish momentum, the Sensex surpassed a key resistance at 41,000 last week. It jumped 671 points, or 1.6 per cent. The daily and the weekly RSIs are approaching the overbought territory, and therefore investors should tread with caution.

The key level of 41,000 will act as a significant base now. A strong fall below this level could weaken the short-term uptrend and pull the index lower to 40,500 or 40,250 levels.

The Sensex now tests resistance at 41,700. A breach of this level can push it northwards to 42,000 in the near term.

A further break above 42,000 can take it higher to 42,500 in the short-to-medium term.

The medium-term uptrend that has been in place since late September 2019 will say intact as long as the index trades above 39,000 levels.

On the other hand, an emphatic decline below the vital support level of 41,250 can pull it lower to 40,000. Key supports below 40,000 are at 39,750 and 39,500.

Nifty Bank (32,384.9)

Last week, the Nifty Bank index managed to surpass the key resistance at 32,000 by advancing 370 points or 1.2 per cent.

Having said that the index faces a key resistance ahead at 32,500.

A conclusive breakthrough of this barrier will underpin the medium-term uptrend and accelerate the index higher to 33,000 in the coming weeks.

The daily as well as the weekly RSIs feature in the bullish zone.

Further, the daily and the weekly price rate of change indicators feature in the positive terrain but show signs of weakness.

Therefore, traders should remain cautious as long as the index trades below 32,500 levels.

Key supports at 32,000 and 31,500 can provide base if any corrective decline occurs.

However, a strong plunge below 31,000 will intensify the selling pressure and drag the index lower to 30,500 and then to 30,000 over the short term.

We reaffirm that only a strong tumble below the 30,000-mark will start threatening the short-term uptrend.

Subsequent supports are at 29,500 and 29,000 levels. Traders with a short-term view can hold their long positions as long as the index trades above 32,000 levels with a fixed stop-loss. Partial profits can be booked around 32,500 levels.

Global cues

The Dow Jones Industrial Average extended its rally by gaining 319 points or 1.1 per cent to close at 28,455 levels.

But, after registering a new high at 28,608 last Friday, the index began to decline which is a sign of weakness.

The short-term uptrend will remain in place as long as the index trades above 28,000 levels. Key immediate supports are at 28,300 and 28,100.

Resumption of the upmove can test resistance at 28,500 and 28,600 levels. A decisive break above these levels can take the index higher to 29,000 levels.

The key supports to note below 28,000 are at 27,750 and 27,500 levels.

Published on December 21, 2019
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