Technical Analysis

Index Outlook | Sensex, Nifty 50 display short-term optimism

Yoganand D | Updated on April 11, 2020 Published on April 11, 2020

Sensex, Nifty 50 jumped 12% on positive global cues, but investors should remain cautious

Taking cues from the positive global markets, the domestic bellwether indices regained optimism and witnessed a strong rally in the past week. Global markets rallied on Thursday on US Federal Reserve’s additional stimulus amounting to almost $2.3 trillion to support the economy shutdown due to the coronavirus outbreak.

Along with the global equity markets, the crude oil price movement and the weakening rupee against the dollar need to be tracked in the coming truncated week. The markets are closed on Tuesday for Ambedkar Jayanti. The Q4 earnings are likely to kick-start with curtailed announcements due to the leeway given by SEBI.

Nifty 50 (9,111.9)

In the truncated week, the Nifty 50 index jumped 1,028 points, or 12.7 per cent. Reinforcing the bullish momentum, the recent rally has breached vital resistances at 8,400, 8,600 and 9,000.

Now, the near-term view is positive.

The week ahead: Taking support at around 8,000, the index bounced up strongly, surpassing the near-term resistances at 8,400 and 8,600 last Tuesday.

Thereafter on Friday, the index surged 4 per cent, exceeding a psychological resistance level of 9,000. With this rally, the index appears to have formed a higher high and higher low for the first time since January 2020. This indicates that it could have formed a short- to medium-term low at 7,511 in late March.

The daily relative strength index (RSI) has entered the neutral region from the bearish zone and the weekly RSI is recovering from the oversold territory.

The index currently faces resistances at 9,280; a decisive break above this barrier can take the it higher to a short-term, trend-deciding level in the 9,500-9,600 zone. An emphatic break-out of this vital resistance zone will alter the short-term downtrend and take the index northwards to 10,000 in the short term.

Conversely, a decline below the immediate support level of 9,000 can find supports at 8,800 and 8,600 levels. But a plunge below the second support will bring back selling interest and pull the index down to 8,400 and then to a crucial base level of 8,000 in the short term. A strong tumble below this level can reinforce the downtrend and drag the index lower to 7,800 and then to 7,500.

Medium term: Although the index has been charting higher since late March, the medium-term trend is still down.

The trend will be down as long as the index trades below the medium-term resistance in the 10,000-10,150 band. A conclusive breakthrough of this band can take the index higher to 10,335 and 10,500 in the medium term. The subsequent resistances are at 10,750 and 11,000.

On the downside, a decisive fall below the crucial support level of 8,400 will underpin the downtrend and pull the index down to 8,000. The support below this level is at 7,500.

Sensex (31,159.6)

The Sensex bounced up, taking support at 27,500 and skyrocketed 3,568 points, or 12.9 per cent, in the past week. It has conclusively breached resistances at 28,500 and 29,500.

Also, the index breached the next resistances at 30,000 and 30,500 on Thursday.

The near-term trend has been up since registering a low at 25,638 in late March. As a long as it above 28,500, the uptrend will remain in place; a plunge below this level can strengthen the medium-term downtrend and pull it lower to 27,500 and then to 27,000.

The subsequent supports are at 26,500 and 26,000. On the upside, the index faces a hurdle at 31,500. A conclusive breach of this level can push it higher to 32,000 and then to a short-term, trend-deciding level of 33,000.

Investors with a long-term perspective can consider buying in declines with a stop-loss at 26,000.

 

Nifty Bank (19,913.6)

The Nifty Bank index gained 15.5 per cent in the previous week.

However, it tests a resistance at 20,000, which is a psychological resistance. An emphatic break above this level can pave the way for an up-move to 21,000 and 22,000 in the near term.

Inability to move beyond the immediate resistance level of 21,000 can witness a sideways movement.

The daily RSI has entered the neutral region from the bearish zone and the weekly RSI is recovering from the oversold territory. The daily price rate of change indicator is on the brink of entering the positive terrain.

On the other hand, a conclusive fall below the base level of 19,000 can drag the index lower to 18,000 and then to 17,000 in the short term. Traders with a short-term view can initiate long positions above 20,000 levels with a fixed stop-loss. Key resistances above 22,000 are at 23,000 and 24,000 levels.

Global cues

Last week, the Dow Jones Industrial Average index zoomed 12.6 per cent to close at 23,719.3, setting a near-term positive trend for global markets. It now tests a resistance at 24,000. A strong break above this level can take it northwards to 25,000, which is key trend-deciding level.

A further breakthrough of 25,000 will alter the downtrend and push the index higher to 26,000 and then to 27,000 over the medium term.

Immediate supports are at 23,185 and 22,500.

Published on April 11, 2020

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