Technical Analysis

Index Outlook | Sensex, Nifty 50 show bullish signs

Yoganand D | Updated on October 10, 2020 Published on October 10, 2020

Sensex, Nifty 50 cross crucial barriers, strengthening the positive momentum

The benchmark Sensex and Nifty 50 indices continued to trend northwards amid minor volatility last week.

Banking and IT stocks aided the rally; the monetary policy, with its focus on liquidity measures, too, helped. The way ahead is crucial though as the benchmarks enter pre Covid-19 levels.

 

So, investors should thread with caution in the coming week. The September quarter earnings announcements of bluechip companies can provide direction to the key indices.

Nifty 50 (11,914.2)

Last week, the Nifty 50 index conclusively breached key resistances at 11,580 and 11,630. Further, it has crossed the recent high of 11,794 recorded in late August this year. The index surged 497 points, or 4.4 per cent, in the past week.

Week ahead: The index did a volte-face in late September at around 10,800 that provided a key base and continued to trend northwards. It has been on a near-term uptrend since then.

The index recently surpassed the 21- as well as the 50-day moving averages (DMAs), and trades well above them. Nevertheless, it currently faces a key psychological resistance ahead at 12,000.

The daily relative strength index (RSI) has entered the bullish zone and continues to chart higher in this zone. It is likely to enter the over-bought territory, that is, above 70 levels. Moreover, the weekly RSI has re-entered the bullish zone from the neutral region.

Besides, the daily as well as the weekly price rate of change indicators are hovering in the positive territory, indicating buying interest. An emphatic breakthrough of 12,000 can take the index northwards to 12,200 and then to 12,400 levels in the short term.

On the other hand, if the index fails to go beyond 12,000 or reverses down from this level, it can decline to 11,750 initially. A further decline below this base can pull the index lower to 11,600, which is a significant near-term support. In that case, the index can consolidate sideways in the band between 11,600 and 12,000 for a while.

Having said that, a plunge below this crucial support level of 11,600 can drag the Nifty 50 index lower to 11,400 and then to 11,200 over the short term. The next support for the index is placed at 11,150 and then at 11,000.

As long as the index trades above the psychological support level of 11,000 the short-term uptrend will remain positive. The subsequent support is at 10,800, that is, the late September low.

Medium term: The recent bullish momentum continued last week, and has strengthened the medium-term uptrend that has been in place since the March low of 7,511. Last week, the index conclusively surpassed a key medium-term resistance at 11,500 and extended the rally. But it now faces a key barrier ahead at 12,000, a psychological level to note.

A strong rally above this resistance will reinforce the uptrend and take the index northwards to a lifetime high of 12,430, and thereafter, it can record new high over the medium term.

Conversely, the significant supports at 11,500 and 11,000 could provide base in case the index witnesses a corrective down-move. We reaffirm that a strong weekly close below this level can drag the index down to the next medium-term support levels of 10,600 and 10,200.

A further fall below the strong support level of 10,000 can pull the index down to 9,800 and then to 9,600 in the medium term.

Sensex (40,509.5)

Last week, the Sensex extended its recent rally and gained 1,812 points, or 4.68 per cent, conclusively surpassing the key resistance level of 40,000. The index trades well above its 21- and 50-DMAs. Though the near-term stance appears to be positive for the index, it faces a vital resistance on the way forward at 41,000.

A decisive break-out of the barrier will strengthen the uptrend that had commenced from the late September low of 36,500. A strong rally above 41,000 levels can take the index northwards to 41,700 and then to 42,000 over the short to medium term.

On the downside, a strong decline below the immediate support level of 40,000 can pull the index lower to 39,500 and then to 39,000 over the short term. As long as the Sensex trades above the vital support level of 38,000, the near-term trend will remain positive. But a conclusive fall below this base can pull the index lower to 37,500 and then to 37,000.

As long as the index trades above the trend-deciding level in the 36,500-36,600 zone, the short-term trend will remain positive for the index. The subsequent crucial support is placed at 36,000. Investors with a long-term horizon can remain invested with a modified stop-loss at 35,000.

Nifty Bank (23,846.8)

The Nifty Bank index continued to outpace the benchmark indices and soared 1,600 points, or 7.2 per cent. While trending up, the index surpassed key barriers at 23,000 and 23,500.

But it now faces a crucial hurdle at 24,000. A strong break above this resistance will reinforce the bullish momentum and push the index higher to 24,500 and then to 25,000 in the ensuing trading weeks.

The index trades well above the 21- and 50-day moving averages. The daily relative strength index features in the bullish zone whereas the weekly RSI continues to hover in the neutral region with an upward bias.

Further, the daily price rate of change indicator features in the positive territory, implying buying interest. Traders with a short-term view can go long on a strong rally above 24,000 with a fixed stop-loss.

Conversely, if the index falls below the immediate support level of 23,000, it can decline to 22,500 and thereafter to 22,000.

Global cues

The Dow Jones Industrial Average continued to gradually trend upwards in the past week and surpassed a key barrier at 28,000.

It gained 3.3 per cent in last week to close at 28,586.9. It can continue to trend upwards and encounter a resistance at 29,000 in the near term. A strong break above this barrier is needed to strength the uptrend and take the index northwards to 29,200 and then to 29,500 levels.

On the downside, if the index slumps below the immediate base level of 28,000, it can decline to 27,500 and test 27,000 levels over the short term.

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Published on October 10, 2020
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