Technical Analysis

Will Sensex, Nifty bounce back this week?

Gurumurthy K BL Research Bureau | Updated on October 23, 2021

The indices have to sustain above their immediate supports to avoid a steeper fall from here

The Indian equity market began the week on a strong note with a wide gap-up open on Monday. Sensex and Nifty opened the week over 500 and 150 points, respectively. But the indices failed to sustain the momentum and did not get a strong follow-through buying. As such, the Sensex and Nifty fell back from their respective new all-time highs of 62,245 and 18,604.

Although the fall last week has not disrupted the charts, caution is required as the indices are now poised near their crucial support levels. Sensex and Nifty will come under more selling pressure and run into a steeper correction if they break below their immediate supports.

So, the price action this week will need a close watch to see if the indices are running into a steeper correction or will hold above the support and see a strong bounce to keep the uptrend intact.

Nifty 50 (18,114.9)

The Nifty 50 opened the week on a positive note with a wide gap-up at 18,500. But then the index failed to get a strong follow-through rise above 18,600. It made a high of 18,604 on Tuesday and fell consistently for the rest of the week. It has closed at 187,114.9, down 1.22 per cent.

The week ahead: A crucial support is near current levels in the 17,960-17,940 region. If Nifty manages to sustain above this support, a bounce-back move to 18,500-18,600 can be seen again this week. However, a strong rise past 18,650 is necessarily needed for the index to gain fresh momentum and move up towards 18,900-19,000 levels in the short-term.

On the other hand, if Nifty breaks below 17,940 this week, a further fall to 17,500-17,350 is possible. Such a fall will confirm that a correction has set in within the broader uptrend.

Overall, 17,940-18,650 is the range of trade in the near-term. A breakout on either side of this range will then determine whether the Nifty can go up to 18,900-19,000 or will fall to 17,500-17,350.

Medium-term outlook: Cluster of supports are poised around the psychological level of 17,000. The medium-term trend will remain up if the Nifty sustains above 17,000. A break below 17,000 is needed to indicate a reversal. Such a break can drag the index down to 16,800-16,650 initially and then to 16,300-16,000 eventually. A fall to 16,650 and 16,000 will be a good buying opportunity from a long-term perspective.

Sensex (60,821.62)

As expected, Sensex rose towards 62,000 last week. The index surged to 62,245 in the initial part of the week. However, it failed to sustain higher and fell-back sharply in the second half of the week. Sensex has closed at 60,821.62, down 0.79 per cent for the week.

The week ahead: Sensex has immediate supports at 60,450 and 60,250. If it manages to sustain above these supports, a bounce-back move to 62,000-62,250 can be seen again this week. But if the index breaks below 60,250 it can come under further selling pressure. Such a break can then drag it to the crucial short-term support level of 59,000.

Medium-term outlook: The medium-term trend remains up. A confirmation of a deeper correction will come on a decisive break below 59,000. Such a break can drag the Sensex down to 58,000-57,000. The current uptrend will come under threat only if Sensex declines below 57,000 in which case the downside will open for a test of 56,000-55,000. For now, we can expect the Sensex to remain above 57,000 and keep the overall uptrend intact.

Nifty Bank (40,323.65)

The Nifty Bank index remained range bound in the first half of the week. It oscillated between 39,300 and 40,000 initially, and then broke above the psychological 40,000 mark towards the end of the week. The index has closed on a strong note at 40,323.65, up 2.5 per cent for the week.

The broader trend is still up. However, an immediate resistance is in the 40,700-40,800 region. Inability to breach 40,800 can keep the index in the range of 40,000-40,800 for some time. Cluster of supports are seen in the broad 40,000-39,300 zone.

As such, the downside is likely to be limited to 39,300 in case if the index breaks below 40,000 this week. As long as the index stays above 39,300 the overall view will remain bullish, and the chances are high for it to breach 40,800 eventually. Such a break will then pave way for a fresh rise to 42,000.

The index will come under pressure only if it breaks below 39,300. Such a break can drag the Nifty Bank index down to 38,100 and 37,850.

Traders can wait for dips and go long at 40,100. Accumulate longs at 39,800 and 39,400. Keep the stop-loss at 38,700. Book profits at 41,900. Trail the stop-loss up to 40,350 as soon as the index moves up to 40,850. Move the stop-loss further up to 41,320 as soon as the index rises to 41,600.

Global cues

On the global front, the US equity markets outperformed last week. The Dow Jones Industrial Average, S&P 500 and the Nasdaq Composite were all up over a per cent. The major Asian indices closed in the red. Nikkei 225 was down 0.91 per cent, Shanghai Composite and Kospi were down 0.3 per cent each.

As mentioned in this column last week, the Dow Jones Industrial Average (35,677) broke the 33,500-35,000 range on the upside. It can now test 36,000 — an important resistance level to watch this week. Inability to breach 36,000 can drag it down to 35,000 and even 34,000 again. A strong rise past 36,000 is needed to see an extended rise to 36,500 and higher levels.

Published on October 23, 2021

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