Technical Analysis

Index Outlook | Sensex, Nifty 50 face crucial hurdle

Yoganand D | Updated on September 12, 2020 Published on September 12, 2020

A strong break above 39,000 can pave the way for the Sensex to move towards 40,000

It was another choppy week for bellwether indices Sensex and Nifty 50. Despite volatility, the key benchmark indices managed to advance higher, witnessing buying interest in some of the bluechip stocks.

Following the European Central Bank’s monetary policy meeting that left the rates unchanged, the focus has shifted to the upcoming US Federal Reserve meeting. The global markets could lend direction to the domestic market in the coming week. The rupee’s movement against the dollar and crude oil price action also need to be watched.


Nifty 50 (11,464.4)

Last week, the Nifty 50 gained 1.15 per cent, or 130 points, after tumbling 2.7 per cent in the week ago. The volatile price action over the past two weeks appears to be a corrective phase.

Week ahead: The Nifty 50 took support at around 11,190 and bounced up, surpassing a key resistance at 11,400 as well as the 21-day moving average.

The index trades above the 21- and 50-day moving averages.

It has significant support in the band between 11,000 and 11,100, which could provide base in the short term. A decisive fall below this base zone can pull the index down to 10,800, where the 200-day moving average is poised.

The near-term uptrend will remain intact as long as the index trades above 10,800 levels. Only a strong decline below this support can drag the index lower to 10,600 over the short term.

On the upside, the index faces key resistances ahead at 11,580 and 11,630. An emphatic break above the hurdle at 11,630 can take the index northwards to test the recent high of 11,794 over the short term.

Medium term: The medium-term trend continues to be up for the index since it recorded a low of 7,511 in late March this year. As long as the index trades above the significant long-term support level of 10,000, the medium-term uptrend will remain in place.

The relative strength index (RSI) in the weekly chart is featuring in the bullish zone and the moving average convergence divergence (MACD) in the weekly chart continues to move higher in line with the index.

An emphatic break above the key barrier at 11,800 can take the index northwards to 12,000.

A further break above this level can pave the way for an up-move to the lifetime high of 12,430 over the medium term.

On the other hand, a conclusive fall below 10,000 can pull the index down to 9,800 and then to 9,600 over the medium term.

The immediate supports are at 11,000 and 10,600 levels.

The next support below 10,600 is at 10,200.

Sensex (38,854.5)

The Sensex jumped 497 points, or 1.3 per cent, last week, surpassing a key resistance at 38,500 levels.

The index took support at around 38,000 last week and reversed higher, witnessing strong buying interest.

It now faces a key resistance ahead at 39,000.

An emphatic break above this barrier will push the index northwards to 39,500 and then to 40,000 over the short term.

A further break above this psychological resistance level of 40,000 will strengthen the uptrend and take the index northwards to 40,700 and then to 41,000 over the medium term.

Conversely, a tumble below the vital base level of 38,000 can drag the Sensex lower to 37,700.

Thereafter, the index can find support at 37,500 and 37,000 levels. The next support is at 36,600, which is a crucial short-term trend-deciding level.

Investors with a long-term perspective can stay invested with a stop-loss at 32,900.

Nifty Bank (22,479.9)

The Nifty Bank index extended its near-term downtrend and plunged 531 points, or 2.3 per cent, under-performing the benchmark indices in the previous week. The index now tests a support at 22,300. A decisive fall below this base can pull the index lower to 22,000 and then to 21,500. The subsequent crucial support is placed at 21,000.

On the upside, the Nifty Bank index has a significant medium-term resistance at 23,000 which could limit the upside in the coming weeks.

As long as the index trades below this hurdle, the near-term outlook will remain bearish.

Only a strong break above 23,000 can bring back bullish momentum and take the index northwards to 23,500 and then to 24,000 over the medium term.

As the index is range-bound between 22,300 and 23,000, traders with a short-term horizon should tread with caution as long as it trades in this zone.

Consider initiating fresh short positions on a fall below 22,300 with a fixed stop-loss.

Global cues

The Dow Jones Industrial average slumped 467 points, or 1.7 per cent, last week to close at 27,665.6. It currently hovers above a key base level of 27,500.

An emphatic plunge below this support will strengthen the bearish momentum and pull the index lower to 27,300 and then to 27,000. The next crucial support is pegged at 26,600.

On the upside, if the index makes a strong breakthrough of 28,000, it can trend northwards to 28,430 and to 28,700 over the short term.

The resistances thereafter are placed at 29,000 and 29,200.

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Published on September 12, 2020
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