Technical Analysis

Index Outlook | Sensex, Nifty 50 poised at vital zone

Yoganand D | Updated on July 26, 2020

The bellwether indices extended their strong surge over the past week, but face hurdles

The past week was strong for the domestic equity indices — the Sensex and the Nifty 50 — as they advanced about 3 per cent. The mid- and the small-cap indices also witnessed gains.

However, the global uncertainty about rising US-China tensions and continued increase in the number of Covid-19 cases can cause near-term correction across indices worldwide.

Therefore, investors should tread with caution in the ensuing derivatives expiry week.


Nifty 50 (11,194.1)

Gaining bullish momentum, the Nifty 50 index extended the uptrend, decisively breaking through a key resistance at 11,100 levels.

The index jumped 292 points, or 2.7 per cent, last week.

The short-term uptrend is intact.

The week ahead: The index recently resumed the short- as well as the medium-term uptrend following a minor sideways movement at around 10,800. In the on-going rally, the index decisively surpassed a key resistance at 10,830 and then the 200-day moving average.

Moreover, it also emphatically breached the significant medium-term resistance at 11,000.

Having said that, it now tests resistance at 11,200 and faces another crucial barrier at 11,433 levels.

The daily relative strength index (RSI) has entered the overbought levels, that is, above the 70 level, indicating a cautious approach is needed.

Notably, the daily price rate of change indicator is weak and displays negative divergence, signifying that a near-term trend-reversal is on the cards. The weekly RSI has entered the bullish zone from the neutral region.

If the index manages to stay above the immediate significant support level of 11,000, it has the potential to test a vital resistance at 11,433 levels.

An emphatic break above 11,433 will pave the way for an upmove to 11,600.

Conversely, if the Nifty index tumbles below the near-term base level of 11,000, it can trend down to 10,800 and then to 10,600 levels. The next crucial support is at 10,500.

A decisive decline below this buttress can drag the index lower to 10,200 and then to 10,000 over the short term.

The short-term uptrend will remain intact as long as the index trades above the vital support level of 9,800.

The subsequent supports are at 9,600 and 9,400 levels.

Medium term: The medium-term uptrend that commenced from the March low of 7,511 is intact. The index recently exceeded the significant medium-term resistance at 11,000 that had underpinned the bullish momentum.

But it has a key resistance ahead at 11,400 that needs to be watched carefully. A decisive break above this hurdle can pave the way for an upmove to 11,600 levels in the medium term.

The next resistance is placed at 11,850. The key medium-term supports are at 10,500 and 10,000.

On the other hand, a decisive fall below the significant support level of 9,400 could alter the medium-term uptrend and pull the index downwards to 9,200 or 8,800 levels.

Sensex (38,128.9)

The Sensex witnessed a strong rally as it jumped 1,108 points, or 3 per cent, last week. It has conclusively breached the key resistance level of 37,000, but now tests the next key hurdle at 38,000. It has another crucial resistance ahead at 38,500.

Failure to move beyond 38,500 can drag the index lower to 37,500 and then to the 37,000 mark in the short to medium term. A strong decline below 36,500 can pull the Sensex lower to 36,000 levels.

The next key supports are at 35,500 and 35,000.

A strong plunge below the vital base level of 35,000 can bring back selling pressure and pull the index lower to 34,000.

We reiterate that a fall below the medium-term base level of 34,000 can pull the index lower to 33,000 and then to 32,500 levels over medium term.

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

The medium-term trend that has been up since the March low will stay in place until the index trades above the 30,000 mark. The next supports are at 29,500 and 29,000.

Investors with a long-term horizon can stay invested with a revised stop-loss at 30,500.

Nifty Bank (22,662)

Last week, the Nifty Bank jumped 695 points, or 3.2 per cent, outpacing the key bellwether indices. A significant resistance at 23,000 once again limited the upside last week. The index continues to tests the resistance at 23,000.

A strong break above this barrier is required to strengthen the bullish momentum and take the index higher to 23,500 and then to 24,000 over the short to medium term. The immediate support is at 22,000.

A slump below this base can drag the index lower to 21,500 and then to 21,000. This could keep the index consolidating in a sideways band between 21,000 and 23,000 for some time.

Nevertheless, a strong decline below 21,000 can drag the index downwards to 20,500 and 20,000 levels over the short term. A further slump below 20,000 can witness the down-move extending to 19,500.

The key supports thereafter are pegged at 18,000 and 17,000 levels.

Traders with a short-term perspective should tread with caution as long as the index trades below 23,000 levels.

But they can consider taking fresh long positions on a strong rally above 23,000 levels with a fixed stop-loss.

Published on July 25, 2020

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