Technical Analysis

Stepping into unchartered territory

Yoganand D | Updated on July 15, 2018

The Nifty and the Sensex saw strong rallies last week. Momentum can remain intact

It was a bullish start for the equity market across the globe last week. The domestic indices — Nifty and Sensex — also began on a positive note and extended their rallies, backed by strong Q1 earnings announcement that kicked off last week. Despite a setback from retail inflation increase and decline in May industrial output, the benchmark indices moved higher, taking cues from the global market. The corporate results announcement of the blue-chip stocks could keep the bullish momentum intact. However, investors need to tread with caution as the key indices scale new highs and enter unchartered territory.

Nifty 50 (11,018.9)

The Nifty index started the previous week on a strong footing and decisively breached the significant resistance level at 10,800. The index advanced 246 points or 2.3 per cent last week.

Short-term trend: The recent rally has strengthened the short-term uptrend that has been in place from the low formed at around 9,950 this March. However, the index now tests the next key resistance at 11,000 and the subsequent vital resistance is at 11,150. Therefore, a corrective decline can’t be ruled out now. Such a decline can find supports at 10,900 and 10,800 levels. The index trades well above its 21 and 50-day moving averages. Both the daily and weekly relative strength indices feature in the bullish zone, backing the uptrend. Moreover, the daily as well as weekly price rate of change indicators hover in the positive terrain, implying buying interest.

An emphatic up-move beyond 11,150 can take the index higher to 11,250 levels in the short term. Conversely, if the index slips below the key support level of 10,800, the crucial support at 10,600 can provide base.

Traders with a short-term perspective can make use of corrective declines to initiate long positions with a stop-loss at 10,750 levels. Key supports below 10,600 are placed at 10,550 and 10,400. To alter the short-term uptrend, the index needs to decisively plunge below the 10,400 levels.

Medium-term trend: After virtually two months of sideways consolidation in the wide range between 10,400 and 10,900, the index eventually progressed upwards. Last week, it surged more than 2 per cent, moving out of this range. The medium-term trend is up. The index can extend its up-move by breaching the key resistance at around 11,150.

Ensuing medium-term targets are 11,250 and 11,500 with minor corrective dips. On the other hand, a strong tumble below the support in the 10,400-10,450 band is required to threaten the uptrend and drag the index down to 10,200 and 10,000 levels.

Sensex (36,541.6)

Extending the recent gains, the Sensex registered a new high by surging 883 points or 2.5 per cent last week. The rally decisively surpassed key hurdles at 35,800 and 36,000 levels. The Sensex trades well above its 21- as well as 50-day moving averages. However, with the daily indicators nearing the overbought territory, corrective dips can’t be ruled out. A corrective fall to 36,200 or 36,000 is possible in the near future. Continuation of the uptrend can take the index higher to 36,800 and 37,000 levels in the short term.

On the downside, a tumble below the key base level of 36,000, can drag the index down to 35,800 and to 35,400 levels. Subsequent crucial support is at 35,000 for the index.

Medium-term trend: Last week, the index made an upward break-out of the range-bound movement. Medium-term trend is up for the index. A rally to 37,000 and 37,400 levels is possible in the medium term, but with some minor pause during the up-move. Key medium-term supports are at 35,600 and 35,000 levels.

Nifty Bank (26,935.9)

In the previous week, the Bank Nifty too advanced 442 points or 1.67 per cent, breaching a key resistance at 26,500 levels. Moreover, this rally has surpassed the 21-day moving average and trades way above it. The index appears to have resumed its short-term uptrend that has been in place since late March.

Nevertheless, the index now tests a significant resistance at 27,000, which had capped the upside during late May and early June. The daily and weekly relative strength indices hover in the bullish zone. Similarly, both the daily and weekly price rate of change indicators feature in the positive territory, implying buying interest.

A strong upward break of 27,000 can push the index higher to 27,500 and 28,000 levels in the short to medium term. But failure to move beyond 27,000 can witness a minor corrective decline that can take support either at 26,750 or 26,500 levels in the short term. Traders with a short-term horizon can wait and take long positions above 27,000 levels with a fixed stop-loss. Key supports below 26,500 are placed at 26,200 and 26,000 levels. A plunge below 26,000 will extend the corrective fall to 25,750 and 25,500 levels.

Global cues

Taking support at around 21,500, the Nikkei 225 index appears to have bounced back strongly in recent times. Last week, the index jumped 3.7 per cent to close at 22,597 levels. The index can continue to move upwards and test resistance at 23,000 in the ensuing weeks. An emphatic breakthrough of this resistance can push the index higher to 23,500.

The Dow Jones index tests a vital resistance at 25,000 following a strong 562 points rally last week. A strong break above the barrier can pave way for an up-move to 25,300 and 25,550. Supports are at 24,700 and 24,500.

Published on July 15, 2018

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