Technical Analysis

Index Outlook | Sensex, Nifty 50 poised above key supports

Yoganand D | Updated on April 05, 2020

Investors need to tread with caution in this truncated week as global weakness persists

The domestic benchmark indices, the Sensex and the Nifty, commenced the previous week on the back foot and continued to decline thereafter, witnessing selling pressure amid global weakness.

In the coming week, the US Federal Reserve’s release of the minutes of its last meeting, and the US crude oil inventories are key developments to watch out for. The progress in containing the coronavirus is another factor. The markets are closed on Monday and Friday on account of Mahavir Jayanti and Good Friday. Investors/traders need to tread with caution in this truncated week.

Nifty 50 (8,083.8)

The Nifty index resumed the downtrend last week, by tumbling 576 points, or 6.6 per cent. After testing a resistance at ₹8,600 in mid-week, the index continued to trend downwards breaching a key support at 8,400. With the recent decline, the near-term positive momentum witnessed in the week before has waned. The near-term stance is negatively biased.

The week ahead: The index is poised above a significant base at 8,000. A strong plunge below this level can strengthen the downtrend and pull the index down to 7,800 and then to 7,500 in the ensuing weeks.

The daily relative strength index (RSI) hovers in the bearish zone, but the weekly RSI features in the oversold territory.

An upward reversal from these supports can keep the index consolidating sideways in a wide band between 7,500 and 9,000 for a while.

That said, an emphatic slump below 7,500 will intensify the selling pressure and can drag the index down to 7,300 and then to 7,000 in the short term.

On the other hand, an up-move above the immediate resistance level of 8,400 can lead to a corrective rally.

The index can extend the corrective upmove to 8,600 and then to 9,000. We reaffirm that a strong rally above 9,000 and 9,280 can push the index northwards to a short-term, trend-deciding level in the 9,500-9,600 band.

To alter the short-term downtrend, the index needs to break above this zone so that the index trends upwards to 10,000.

Medium term: The index is in a medium-term downtrend. Only a strong break above the medium-term resistance in the 10,000 and 10,150 zone can alter the downtrend and take the index upwards to 10,335 and 10,500.

The significant resistances thereafter are at 10,750 and 11,000. Conversely, a plunge below the support level of 8,000 can reinforce the downtrend and drag the index lower to test support at 7,500. A decline below this base can pull it to 7,230 and 7,000 in the medium term.

Sensex (27,590.9)

A tumble below the near-term support level of 27,000 can pull it down to 26,500 and then to 26,000. The next key support for the index is between 25,500 and 25,700. Inability to find support in this support zone can drag the index down to 25,000 in the medium term.

On the upside, a rally above 28,000 can take it higher to 28,500. To extend the corrective upmove, the index needs to decisively move beyond 28,500 for an up-move to 29,500 levels.

The subsequent resistances are at 30,000 and 30,500. A broad sideways consolidation phase can be seen in the wide range between 26,000 and 30,500 for a while.

A key short-term, trend-deciding level is at 33,000. Investors with a high risk appetite can consider buying in declines with a long-term stop-loss at 26,000.

Nifty Bank (17,249.3)

Last week, the Nifty Bank index extended the down-move by nosediving 2,719 points. The index trades just above a vital support level of 17,000.

A decline below this level can pull the index down to 16,635 and then to 16,100 in the coming week. The index has a significant support in the band between 16,000 and 16,100, which could provide base. The next supports are at 15,500 and 15,000 levels.

If the Nifty Bank index rebounds, testing base at around 17,000, it can trend upwards to 18,000. An emphatic break above 18,000 is needed to extend the corrective rally higher to 18,600 and then to 19,000 levels.

The subsequent resistances above 19,000 are placed at 20,000 and 21,000. As long as the index trades below 21,000 the short-term trend remains down.

Traders should continue to tread with caution until the index moves beyond 18,000 levels.

A strong rally above this level can witness a corrective upmove to 19,000 and then to 20,000 in the short term. In that case, traders can consider initiating fresh long positions above 18,000 with a fixed stop-loss.

Global cues

Amid volatility, the Dow Jones Industrial Average Index fell 584 points to close at 21,052.5. The key near-term resistance is at 21,500, which could limit the upmove. A deceive break above this hurdle can push the index higher to 22,000 and then to 22,500. On the other hand, a slump below 20,500 can pull the index lower to the psychological support level of 20,000.

The next supports are at 19,722 and 19,000. To alter the short-term downtrend, the index needs to move above 23,000 levels. The resistances thereafter are at 23,500 and 24,500 levels.



Published on April 05, 2020

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