Technical Analysis

Will benchmark indices break out this week?

Yoganand D BL Research Bureau | Updated on May 15, 2021

Nifty can test the nearest support at 14,500 level if it continues recent fall

The domestic benchmark indices, the Sensex and the Nifty 50, ended the week marginally in the negative zone in the midst of volatile global markets. On the global front, investors will watch how markets continue to digest the inflation data from last week and for the Fed minutes from its last meeting, which will be released in the ensuing week.


Nifty 50 (14,677.8)

After an initial rally, the Nifty 50 recorded an intraweek high at 14,966 and started to decline. It has fallen 145 points or 0.98 per cent in the past week.

The week ahead: The Nifty 50 index has been largely range-bound between 14,500 and 15,000 over the past three weeks. If the index continues the recent fall, it can test the nearest support at 14,500 levels. The daily relative strength index is featuring in the neutral region and the weekly RSI has re-entered the neutral region from the bullish zone. The daily price rate of change indicators is on the brink of entering the negative terrain, implying selling interest is on the cards whereas the weekly indicator is hovering in the negative zone, signifying selling pressure.

If the key support at 14,500 provides base again, the index is likely to retain the sideways movement in the band between 14,500 and 15,000 for a while. That said, a decisive fall below the support level of 14,500 can extend the down-move to the next base level of 14,250 and 14,000 in the short term. However, an emphatic downward breakthrough of the vital base level of 14,000 will strengthen the downtrend that has been in place from the February high of 15,431. In that scenario, the index can decline to the next significant support in the range of 13,500-13,600. Subsequent supports are placed at 13,330 and 13,000 levels.

Conversely, the index needs to convincingly break out of the crucial resistance at 15,000 to alter the short-term downtrend and pave the way for an up-move to 15,200 and 15,400 levels in the short term. Immediate resistance is at 14,870.

Medium-term outlook: The index declining about 1 per cent in the past week and broadly trading sideways has not altered the medium-term uptrend that has been in place since the December 2020 low of 13,131 levels. The uptrend will stay intact as the index hovers above 14,000 levels. A plunge below this base can alter the uptrend and drag the index lower to the 13,500-13,600 band and then to 13,000 levels. On the upside, a clear break above 15,000-mark is needed to bring back bullish momentum and take the index higher to 15,200. A further rally above this level can underpin the medium term uptrend and push the index northwards to 15,500 and then to 15,600 over the medium term. As long as the index trades above the crucial support level of 12,750, the intermediate-term uptrend will remain intact. Only a strong decline below this support level will alter the uptrend and pave the way for a down-move to the support level of 12,400, 12,260 and 12,000 over the medium term.

Sensex (48,732.55)

Last week, the index climbed initially but failed to sustain the momentum and declined. It has fallen 473 points or 0.96 per cent in the past week. It currently tests the 21-day moving average. The index is likely to breach this moving average and decline to test key support at 47,700-48,000 zone in the ensuing week. An upward reversal from this key base will keep the Sensex consolidating in the wide band between 47,000 and 50,000, the psychological barrier for a while. Immediate resistance is at 49,500 levels.

We reiterate that an emphatic breakthrough of the 50,000-mark is required to bring back bullish momentum and pave the way for an up-move to 51,000 and then to 51,400 levels over the short to medium-term horizon. A conclusive breakthrough of next resistance at 52,000 is necessary to strengthen the uptrend and take the index higher to 53,000 and then to 54,000 over the medium term.

Nevertheless, if the index plunges below the immediate base level of 48,000, this will strengthen the downtrend that has been in place from the February high of 52,516. In that case, the index can test next support at 47,700 and then 47,000 levels. Subsequent supports are at 46,300 and 46,000 levels. Supports thereafter are at 45,000, 44,520 and 44,000. Investors with a long-term view can stay invested with a stop-loss at 40,000.

Nifty Bank (32,169.55)

Following a marginal move above 33,000 levels, the Bank Nifty failed to sustain above this level and instead it began to decline. The index has plunged 734 points or 2.2 per cent in the previous week. On Friday, the index declined 0.87 per cent, breaching a key base at 32,500 and the 21-day moving average. The near-term stance is biased to bearish side. The index has high possibility of breaching the immediate support at 32,000 in the coming week. Such a decline will strengthen the short to medium-term downtrend that commenced from the February high of 37,708 levels. In such a scenario, the index can re-test the key support in the 30,800-31,000 band over the short term. A further decline will strengthen the downtrend and pull the index lower to the 30,000-mark. Next supports are placed at 29,500 and 29,000 levels. Traders can go short on a fall below 32,000 levels with a tight stop-loss.

We restate that as long as the index trades above 29,000 levels, the intermediate-term uptrend that has been in place from the September 2020 low of 20,400 will remain in place. Supports thereafter are placed at 28,500 and 28,000.

Conversely, if the Nifty Bank index manages to breach the vital immediate resistance at 33,000, that can lead to a corrective rally to 33,500 and then to 34,000 levels. A strong breakthrough of 34,000 level is needed to change the downtrend mentioned above and bring back bullish momentum. The index can then trend upwards to 34,800-35,000 over the short term. Next resistances are at 36,000, 36,500 and 37,000.

Published on May 15, 2021

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