Technical Analysis

Index Outlook | Sensex, Nifty 50 face key resistance ahead

Yoganand D BL Research Bureau | Updated on December 12, 2020 Published on December 12, 2020

The benchmark indices scaled new highs last week; traders should stay alert

The domestic equity indices — the Sensex and the Nifty 50 — coped well, to rally higher amid volatility last week. Global markets were also choppy in the week ago.

In the coming week, the rupee’s movement against the dollar and crude oil price action need to be watched.

 

Nifty 50 (13,513.85)

The Nifty 50 continued to trend northwards, surpassing a key resistance at 13,200, and registered a new high at 13,579.3 on Friday in the midst of volatility. It has advanced 255 points, or 1.9 per cent.

The week ahead: The short-term uptrend in the index that commenced from the late September low of 11,790 is now turning out to be a medium-term uptrend. After a breakthrough of a key psychological barrier at 12,000 in early November, the uptrend has accelerated and continued to move northward.

Following a minor pause at 13,000 in late November, the index extended the rally. It now faces resistance ahead at 13,600. Both the daily as well as the weekly relative strength indices (RSIs) are featuring in the overbought territory, indicating that a corrective decline is on the cards. The immediate supports are at 13,400 and 13,200 levels.

As long as the contract trades above the second base level of 13,200, the near-term outlook will remain positive. An upward breach of the current resistance level of 13,600 can push the index higher to 13,800 and then to 14,000 in the ensuing weeks.

On the downside, if the index slumps below 13,200, it can extend the corrective decline to 13,000 levels.

A conclusive decline below this base level can start weakening the short-term uptrend and pull the index down to 12,750 levels. Further plunge below the crucial support level of 12,750 will alter the on-going uptrend and drag the index down to 12,400 and then to 12,260. The next significant support is at 12,000.

Medium-term outlook: In the first week November, the index gained 4 per cent, breaking above a key resistance at 12,430, and extended the up-move. The recent acceleration from the 13,000 levels has strengthened the medium-term uptrend.

If this uptrend continues, the index can test the crucial psychological resistance at 14,000. An emphatic break-out of this level can take the Nifty 50 higher to 14,500. But failure to move beyond 14,000 can keep the index on a sideways movement for a while.

Conversely, if the index declines below the key base level of 13,000, it can drag it lower to 12,430 and then to 12,000 over the medium term. The next vital supports below 12,000 are at 11,500-11,640 band and 11,000.

Sensex (46,099.0)

The Sensex climbed 1,019 points, or 2.26 per cent, in the week ago, conclusively surpassing the key hurdle at 45,000-mark. However, the index now tests a resistance at 46,000 and is choppy at this level.

The daily RSI is displaying negative divergence, signifying likely corrective decline is in the pipeline. The immediate supports are at 45,600 and 44,000. The supports thereafter are placed at 44,520 and 44,000.

As long as the index trades above the crucial base level of 45,000, the near- to short-term trend will remain bullish. But a strong tumble below 45,000 will start threatening the uptrend and drag the index down to 44,000 over the medium term.

A strong rally above the current resistance level of 46,000 can pave the way for an up-move to 46,500 and then to 47,000 over the medium term. Investors with a long-term horizon can stay invested with a modified stop-loss at 39,000.

Nifty Bank (30,604.8)

The Nifty Bank index extended the uptrend last week and has gained consecutively over the past six weeks. It climbed 552 points, or 1.84 per cent, in the previous week. With the recently rally, the index has managed to close above the key resistance level of 30,000.

However, it is losing the bullish momentum as the uptrend has experienced volatile movement over the past two weeks. Moreover, the daily RSI is displaying a negative divergence, indicating trend reversal. Hence, traders with a short-term should tread with caution in the coming weeks.

A decisive plunge below the immediate support level of 30,000 will confirm that the near-term corrective decline is in place and drag the index lower to 29,500 and then to 29,000 levels. A further slump below the vital base level of 29,000 will indicate short-term trend-reversal that can weaken the index and pull it down to 28,000 on the back of profit taking. The next supports are at 27,000 and 26,000 levels.

On the other hand, a conclusive rally above 31,000 can push the index northwards to 31,500 and then to 32,000 in the short term. Trader should avoid taking fresh positions as long as the index is range-bound between 30,000 and 31,000.

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Published on December 12, 2020
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