Technical Analysis

Index Outlook | Sensex, Nifty 50 test vital resistances

Yoganand D | Updated on August 23, 2020

Bellwether indices rallied in the midst of instability last week; tread with caution

It was a volatile week, in which the key benchmark indices — the Sensex and the Nifty 50 — moved sideways, testing a crucial resistance once again. Despite volatility, the indices managed to close on a positive note.

Ahead of the August month derivatives expiry, the indices can be choppy. Therefore, traders should continue to take a cautious stance in the ensuing week.

Nifty 50 (11,371.6)

Last week, the Nifty 50 index managed to move above the resistance level of 11,200 in the midst of choppiness; it climbed 193 points, or 1.7 per cent. However, the index now tests a significant resistance in the band between 11,400 and 11,433.

The week ahead: The short- as well as the medium-term trends are up and intact. Having said that, the index now tests a crucial resistance zone, continuing with a sideways movement over the last five weeks in the band between 10,900 and 11,433.

Until a decisive break-out of this sideways range, the movement could be considered as a corrective phase. An emphatic break above 11,433 can emphasise bullish momentum and could result in the index continuing its upward journey to 11,500 initially and then to 11,600 in the short term.

The daily relative strength index (RSI) features in the bullish zone and the weekly RSI has just entered the bullish zone, above 60 levels from the neutral region.

Though both the daily and the weekly price rate of change indicators are hovering in the positive terrain, the weekly indicator is exhibiting negative divergence, indicating trend-reversal. Hence, a cautious approach needs to be taken in the near term.

A slip below the immediate support level of 11,200 can pull the index lower to 11,000 or 10,900 levels in the short term. We reiterate that a conclusive decline below the vital base level of 10,850 can bring back selling pressure and drag the index downwards to the next support level of 10,600.

On further decline, the supports at 10,500, 10,200 and 10,000 will come into rescue.

As long as the index trades above the significant support level at 9,800, the short-term uptrend will remain intact.

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

Medium term: The Nifty 50 index has been trending northwards since the March low of 7,511, and the uptrend has been intact. That said, it now tests a crucial medium-term resistance at 11,400.

Only a decisive break above this barrier will strengthen the uptrend and push the index northwards to 11,600 in the medium term. The subsequent resistance is at 11,850.

Conversely, if the index plunges below the short term support level of 10,900, it can experience selling pressure that can pull the index lower to the medium-term support level of 10,500.

The subsequent supports are at the psychological level of 10,000 and at 9,400.

The medium-term uptrend will get negated if the index decisively slips below 9,400 levels. The supports thereafter are placed at 9,200 and 8,800 levels.

Sensex (38,434.7)

The bluechip BSE Sensex index rallied 557 points, or 1.5 per cent, amid volatility last week. The index continues to test the critical resistance at 38,500 that had capped the upside in late July.

An upward breakthrough of this hurdle will reinforce the bullish momentum and accelerate the index to 39,000 in the short term. The subsequent resistances are at 39,500 and 40,000.

On the downside, if the Sensex slumps below the key near-term support level of 37,000, it can be dragged lower to the next vital base level of 36,000 with a slight pause at 36,500 levels. The key supports below 36,000 are pegged at 35,500 and 35,000.

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

A decisive decline below the medium-term support level of 35,000 will be a threat to the short-term uptrend and may pull the index lower to 34,000. The next supports below 34,000 are at 33,000 and 32,500.

The medium-term uptrend that has been in place since the March low will hold true as long as the index trades above the 30,000 mark. Investors with a medium- to long-term perspective can stay invested with a stop-loss at 30,500.

Nifty Bank (22,299.6)

Last week, the Nifty Bank index advanced 620 points, or 2.8 per cent, after it took support at around 21,500. It has also surpassed the 21- and 50-day moving averages.

But the index faces an immediate resistance at 22,500. A breach of this level can take the index higher to 23,000, a key short-term resistance.

Further rally beyond 23,000 will strengthen the medium-term uptrend that has been in place since the May low of 17,105. In that case, the index can trend northwards to 23,500 and then to 24,000 over the short to medium term.

Traders with a short-term perspective can initiate fresh long positions if the index gains above 22,500 levels with a tight stop-loss.

Conversely, an emphatic tumble below the crucial base of 21,500 can bring back selling pressure and drag the index down to the subsequent support of 21,000.

We reaffirm that a further fall below this support can prolong the down-move to 20,500 and then to 20,000 levels in the short term.

A strong slump below 20,000 will be a threat to the uptrend, and the index can trend lower to 19,500. The next supports can be spotted at 18,000 and 17,000 levels.

Global cues

The Dow Jones Industrial Average was choppy last week and closed on a flat note at 27,930.3 levels. The index continues to test the key resistance at 28,000 levels.

We restate that a break above this barrier can push the index higher to 28,500 and then to 29,000 levels in the short term.

Supports at 27,500 and 27,000 can cushion the index on a corrective decline. The supports afterwards are at 26,500, 26,300 and 26,000.

Published on August 23, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor