Technical Analysis

Index Outlook | Sensex, Nifty 50 likely to extend the rally

Yoganand D | Updated on May 30, 2020 Published on May 30, 2020

Gains in bank, auto and FMCG stocks helped Sensex and Nifty 50 advance briskly last week

After a weak start, the Sensex and the Nifty 50 experienced buying interest last Wednesday and continued to trend upwards.

Strong gains in the Nifty Bank, auto and FMCG sector stocks helped the key indices rally.

Both the indices have come out of their range-bound movements and are heading northwards once again. A strong rally in global markets also boosted the domestic indices. The Dow Jones gained 3.7 per cent and Nikkei 225 index surged 7.3 per cent in the past week.

May auto sales data, rupee movement and crude oil price should be monitored.

On the global front, the US-China face-off could impact global markets. Investors should tread with caution.

Nifty 50 (9,580.3)

The Nifty 50 jumped 541 points, or 6 per cent, in the past week, breaking above the crucial resistance levels of 9,200 and 9,400.

It also surpassed the 21- and 50-day moving averages, and hovers well above them.

The week ahead: The index took support at 8,800 in the week before last, and began trending upwards.

With last week’s strong rally, the index has altered the short-term downtrend and appears to have resumed the uptrend that had commenced from the late March low of 7,511.

Now, the index tests a resistance at 9,530. Another decisive close above this will confirm that the short-term downtrend has come to an end.

It can continue to trend upwards and reach the subsequent resistances at 9,600 and then 9,800 in the coming weeks.

The daily relative strength index (RSI) is on the brink of entering the bullish zone from the neutral region, and the weekly RSI has entered the neutral region from the bearish zone.

Besides, the daily as well as the weekly price rate of change indicators feature in the positive terrain, implying buying interest. There has been an increase in daily volume over the past three sessions.

If the index fails to move beyond 9,600, it can decline and test a support at 9,400. The subsequent supports are at 9,200, 9,000 and 8,800 levels.

But, a conclusive slump below the short-term support level of 8,800 can bring back bearish momentum and pull the index lower to 8,400. In case of a further fall below 8,400, the index can trend downwards to 8,200 and 8,000 levels in the short term.

Medium term: The recent rally in the index has strengthened the uptrend that started from the March low.

However, to alter the medium-term downtrend that has been in place from the January high of 12,430, the index needs to decisively break above the resistance in the 10,000-10,150 zone.

Such a breakthrough will pave the way for an up-move to 10,335 and then to 10,500 over the medium term.

The next barriers are placed at 10,750, 10,830 and 11,000. Conversely, a plunge below the crucial base level of 8,800 can drag the index down to 8,400. The supports below this level are at 8,000 and 7,500.



Sensex (32,424.1)

Last week, the Sensex jumped 1,751 points, or 5.7 per cent, conclusively breaking above vital resistances at 31,000 and 32,000 levels. As the index has surpassed the key resistance level of 32,000, it can continue to trend upwards and test resistances at 32,500 and then to 32,750 in the short term.

The key resistances thereafter are at 33,000 and 33,355.

A strong breach of these barriers will pave the way for an up-move to 34,000 levels over the medium term.

The index can find supports at 32,000 and then at 31,500 or 31,000 in case of corrective decline. The subsequent crucial support is at around 30,000. A tumble below this base level will bring back selling interest and drag the index lower to 29,500.

We reaffirm that the short-term uptrend that began from the March low of 25,638 will be intact as long as the index hovers above 29,500 levels. Investors with a long-term view can stay invested with a revised stop-loss at 28,500.

Nifty Bank (19,297.2)

Outpacing the bellwether indices, the Nifty Bank index skyrocketed 2,018 points, or 11.7 per cent, in the past week. It now faces a vital resistance at 20,000.

An empathic break above this level can push the index higher to 21,000 in the coming weeks.

A further rally above this level can take it northwards to 22,000 over the medium term. But a downward reversal from the immediate resistance level of 20,000 can keep the index in a sideways movement between 17,000 and 20,000.

A slump below the key support level of 17,000 will reinforce the downtrend and drag the index down to 16,100 levels.

The immediate supports are at 18,700 and 18,000. Traders with a high risk appetite can initiate long positions with a stop-loss at 18,700 levels and can book partial profit at 20,000-mark.

Global cues

Breaking a crucial hurdle at 24,500, the Dow Jones Industrial Average jumped 918 points, or 3.7 per cent, to close the week at 25,383. Nevertheless, the index tests a resistance at 25,500.

A decisive breakthrough of this resistance will take the index northwards to 26,000 and then to 26,500. But, a decline below 25,000 can pull the index lower to the crucial base level of 24,500. The next supports are at 24,000 and 23,500.

Published on May 30, 2020
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