Technical Analysis

Index Outlook: Sensex and Nifty stay above vital bases

Yoganand D | Updated on December 28, 2019 Published on December 28, 2019

This should provide a cushion against corrective declines

The equity benchmark indices — the Sensex and the Nifty — started the past week on a subdued note and subsequently turned choppy during the December derivatives expiry session.

But the indices made strong gains on Friday, recovering the initial loss. The December auto sales number, rupee movement against the dollar and crude oil price, along with developments in the global markets, need to be watched in the coming week .

Nifty 50 (12,245.8)

After an initial decline, the Nifty index bounced up, gaining almost 1 per cent on Friday, trimming the weekly loss to 26 points or 0.2 per cent.

The index managed to stay above the key support level of 12,100. This level could continue to provide base in the coming week if any corrective decline is witnessed.

The next key support is at 12,000. But the Nifty faces a key barrier ahead at 12,300. An emphatic break above this level can strengthen the short-term uptrend and take the index higher to 12,400 and 12,500 levels in the coming weeks.

Inability to move beyond 12,400 can keep the Nifty wavering between 12,000 and 12,400 for a while. The index continues to trade well above the 50- and 200-day moving averages. The daily relative strength index (RSI) has re-entered the bullish zone from the neutral region, while the weekly RSI features in the bullish zone. That said, the weekly price rate of change indicator shows signs of weakness.

A conclusive fall below the key support level of 12,000 can pull the index down to 11,850, which is the subsequent vital base to note.

A tumble below this level, where the 38.2 per cent fibonacci retracement level of the short-term uptrend overlaps, will start weakening the short-term uptrend that has been in place from October 2019.

The index can decline further in that case and test the next key support at 11,700. The supports below this are pegged at 11,550 and 11,440 levels. As long as the index trades above the trend-deciding level of 11,500, the short-term uptrend will remain in place. The supports below 11,500 are at 11,350 and 11,200.

Medium-term trend: Last week’s narrow movement has not impacted the medium-term uptrend of the index that has been in place since the September low of 10,670.

The index managed to stay above the key support in the 12,000-12,100 band. We reiterate that a decisive rally above the immediate resistance level of 12,300 will strengthen the medium-term uptrend and take the index northwards to 12,500 over the medium term. Conversely, a downward reversal from the key resistance can drag the index lower to 12,000 initially and then to 11,800 levels. Only a strong fall below 11,500 will start threatening the medium-term uptrend and drag the index lower to the key trend-deciding level of 11,200.

The subsequent supports at 11,000, 10,800 and 10,700 levels can come into picture on a fall below 11,200 levels. Investors with a medium-term perspective can stay invested with a stop-loss at 11,300.

 

Sensex (41,575.1)

The Sensex stayed above the vital base level of 41,000 in the past week. The 1 per cent gain on Friday trimmed the weekly loss to 106 points or 0.26 per cent.

As long as the index trades above 41,000, the near-term stance remains positive and it can re-test resistance at 41,700. A break above this level will take the Sensex higher to 42,000 in the near term.

A breakthrough above 42,000 can accelerate it northwards to 42,500 in the short-to-medium term.

We restate that as long as the index trades above 39,000 levels, the medium-term uptrend that has been in place since late September 2019 will remain intact. Supports below 41,000 are placed at 40,500 and 40,250.

Alternatively, an emphatic decline below the vital support level of 40,000 can drag the index down to 39,750 and 39,500 in the short term.

Nifty Bank (32,412.3)

The Nifty Bank index, amid volatility, has marginally outperformed the broader indices and closed in the green. It added 27 points or 0.0.8 per cent last week. Taking support at around 32,000, the index surged 1.3 per cent on Friday.

Nevertheless, the index tests a key resistance at 32,500. An emphatic break-out of this hurdle is needed to reinforce the bullish momentum and take the index upwards to 33,000 in the coming weeks. The daily RSI has re-entered the bullish zone, while the weekly RSI hovers in the bullish zone.

Besides, the daily and the weekly price rate of change indicators are hovering in the positive terrain but with mixed cues. As long as the index trades below 32,500 levels, traders with a short-term perspective should adopt a cautious approach.

The key immediate supports at 32,000 and 31,500 can provide a cushion if a corrective decline is seen. That said, a decisive fall below 31,000 will bring back selling pressure and pull the index down to 30,500 and then to 30,000 over the short term. Only a strong plunge below the 30,000 mark will start weakening the short-term uptrend. In that case, the next supports at 29,500 and 29,000 levels will come into play.

Traders with a short-term view should tread with caution and initiate long positions on a strong rally above 32,500 levels with a fixed stop-loss.

Global cues

Last week, the Dow Jones Industrial Average scaled a new high by advancing 190 points or 0.67 per cent to end at 28,645.2.

However, the daily RSI has reached the overbought territory and the price rate of change indicator is displaying negative divergence. So, a near-term corrective decline is possible to 28,500 and then to 28,300 in the near future.

The key resistances are at 28,700 and 29,000 levels. The supports below 28,000 are at 27,750 and 27,500 levels.

Published on December 28, 2019
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