Technical Analysis

Index Outlook | Sensex, Nifty 50 poised above key bases

Yoganand D | Updated on August 01, 2020 Published on August 01, 2020

Sensex, Nifty 50 test crucial barriers and slump; investors need to stay watchful

It was a volatile week for the key bellwether indices — the Sensex and the Nifty 50. They witnessed selling interest and slumped over 1 per cent last week.

Global markets witnessed mixed trends, with the US market (Dow) ending the week on a flat note and the Japan’s Nikkei 225 experiencing a sharp fall.

The ensuing week is crucial for the domestic indices as the focus will be on the RBI’s monetary policy committee (MPC) meetings.

Apart from that, investors need to keep a watch on the rising gold price and the rupee movement against the greenback.

Nifty 50 (11,073.4)

The Nifty 50 index snapped its six-week winning streak and slumped 120 points, or 1 per cent, last week amid volatility.

However, the short-term trend continues to be up.

The week ahead: Both the short- and medium-term trends are up for the index. But the near-term trend is under pressure and the index is likely to extend the corrective decline as the daily relative strength index (RSI) displays negative divergence.

A decisive fall below the immediate support level of 11,000 can extend the decline to 10,860, where the 200-day moving average is poised. A further plunge below this base can pull the index lower to the key support level of 10,600.

The subsequent important support is at 10,500. An emphatic break below this base can pull the index down to 10,200 and then to 10,000 over the short term. As long as the index features above the key base level of 9,800, the short term uptrend will stay intact. The supports thereafter are placed at 9,600 and 9,400 levels.

On the upside, the index failed to move beyond the vital resistance level of 11,200 in the past week. This level could continue to act as a key barrier to the index.

A strong break above this level can push the index higher to 11,433 levels. A decisive breakthrough of 11,433 can take the index northwards to 11,600.

Medium term: There has been no major change in the medium-term trend that has been in place from the March low of 7,511.

Although the index had recently moved beyond the key resistance level of 11,000, it is witnessing selling interest at higher levels and could temporarily slump below this base.

If the selling pressure intensifies, the index can test the medium-term support at 10,500. The key support below this level is at 10,000. On the upside, a conclusive break above the significant hurdle at 11,400 can pave the way for an upmove to 11,600 levels over the medium term. The crucial resistances above these levels are at 11,850. A strong plunge below the psychological base level of 10,000 can drag the index down the subsequent support level of 9,400.

Any further decline could alter the medium-term uptrend and drag it lower to 9,200 or 8,800 levels.

 

 

 

Sensex (37,606.8)

Last week, the Sensex slumped 522 points, or 1.4 per cent, on the back of profit-booking at higher levels. The index has a vital support at 37,000, and the 200-day moving average also hovers at this base level.

A strong fall below this base can pull the index lower to 36,500 and then to 36,000 levels. The key supports thereafter are pegged at 35,500 and 35,000.

The short-term uptrend will remain in place as it trades above 35,000 levels.

That said, a strong tumble below the crucial support of 35,000 can bring back selling pressure and drag the index down to 34,000. We reaffirm that a decline below the medium-term support level of 34,000 can pull the index lower to 33,000 and then to 32,500 levels over the medium term.

As long as the Sensex trades above the 30,000 mark, the medium-term trend that has been up since the March low will remain intact. The next supports are at 29,500 and 29,000. We reiterate that investors with a long-term horizon can stay invested with a stop-loss at 30,500.

Conversely, if the index manages to move beyond the immediate resistance level of 38,000, it can move higher to 38,500 in the short term.

Nifty Bank (21,640)

The Nifty Bank plummeted 1,022 points, or 4.5 per cent, in the previous week. It slipped below the key base level of 22,000 as well as the 21-day moving average.

The index now tests a support at 21,500. A decisive fall below this base can pull the index down to 21,000 initially. If this support holds, it could continue to consolidate sideways between 21,000 and 23,000 for some time.

On the upside, the key resistance at 23,000 will continue to act as a significant barrier to the index. An emphatic break above this level is needed to bring back bullish momentum and take the index northwards to 23,500 and then to 24,000 over the short to medium term.

The immediate resistance is now at 22,000. On the downside, a decisive fall below 21,000 can pull the index lower to 20,500 and 20,000 levels in the short term. We restate that a strong tumble below 20,000 can pull the index lower to 19,500.

The next supports are at 18,000 and 17,000 levels. Traders with a short-term perspective can consider initiating fresh short positions on a fall below 21,500 with a a fixed stop-loss.

Global cues

The Dow Jones Industrial Average was choppy and was marginally down 41 points to close at 26,428.3 in the past week.

A key resistance at 27,000 limited the upside. We reiterate that a decisive break above 27,000 can push the index northwards to 27,500 and then to 28,000 over the medium term.

But a conclusive fall below the current support level of 26,300 can drag the index lower to 26,000 and then to 25,500.

A decline below the support level of 25,000 will bring back selling pressure and drag the index lower to 24,500 and then to 24,000 over the short to medium term.

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Published on August 01, 2020
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