Technical Analysis

A strong rally brings back positive bias

Yoganand D | Updated on December 01, 2018 Published on December 01, 2018

Taking global cues, the indices closed on a strong note. The momentum may continue

Tracking the positivity in the global markets, the Nifty and the Sensex witnessed a strong rally last week. Weakening crude oil price and strengthening of the rupee against dollar also aided the domestic equity markets. The rally in the US indices after the Federal Reserve’s minutes were released had a positive impact on the Asian and Emerging markets.

In the coming week, investors needs to keep an eye on the November auto sales number and the RBI's bimonthly monetary policy meeting. On the global front, the outcome of the G-20 the summit and US trade balance would be keenly watched.

Nifty (10,876.7)

The Nifty 50 index zoomed 350 points or 3.3 per cent with good volume last week, tracking the positive move in global markets. It has decisively surpassed a key resistance in the 10,700-10,800 band. Moreover, the index has surpassed its 50- and 200-day moving averages last week and trades well above them. The daily relative strength index has entered the bullish zone from the neutral region in the previous week, and the weekly RSI is charting upwards in the neutral region.

Further, the daily price rate of change indicator hovers in the positive territory, implying buying interest. Since taking support at around 10,000 in late October, the index has been trending upwards. But the index could face resistance at the 11,000-mark in the ensuing weeks. A decisive break above this barrier will underpin the bullish momentum and take the index northwards to 11,100 and then to 11,300 in the short term. On the other hand, an inability to move beyond 11,000 can drag the index down to 10,750 and then to 10,600 levels. Next key supports below 10,600 are placed at 10,400 and 10,300, which can act as a base thereafter.

An emphatic downward break of 10,300 will bring back selling pressure and pull the index lower to 10,100 and 10,000 levels in the short term.

Medium-term trend: After finding significant medium-term support at 10,000 in October, the index changed direction and began to move up. The index has a significant barrier at 11,000, which needs to be exceeded to strengthen the bullish momentum and take the index up to 11,300 and 11,500 over the medium term. Key resistance above 11,500 is placed in the 11,700-11,750 band. Conversely, a break below the key psychological support level of 10,000 can drag the index down to 9,900 initially. A strong plunge below this base can pull the index down to 9,700 and 9,500 levels in the medium term.

Sensex (36,194.3)

The Sensex jumped 1,213 points or 3.5 per cent last week, breaking through a key barrier in the 35,800-36,000 band. The index now faces next resistance at 36,500. Inability to move beyond this level can keep the index consolidating sideways in the 35,500-36,500 range. Any corrective declines can find supports at 35,800 and then at 35,500. But a conclusive break below 35,500 can weaken the uptrend and drag the index down to 35,000 levels in the short term. That said, a break above 36,500 will pave the way for an up-move to 37,000 and 37,400 over the medium term. Traders should tread with caution in the coming week.

Nifty Bank (26,862.9)

Last week, the Nifty Bank index jumped 863 points or 3.3 per cent, breaking above a key resistance at 26,500. But the index encountered another vital resistance at 27,000 on Friday and tests this level.

The short-term trend has turned positive now and the index hovers well above its 50- as well as 200-day moving averages. The indicators in the daily chart feature in the positive territory, implying buying interest. However, current resistance can temporarily halt the rally. Therefore, the index can retrace in the coming week.

Key supports at 26,500 and 26,000 can provide base. On the upside, a conclusive break above 27,000 will bring back bullish momentum and take the index up to 27,500 and then to 27,700 levels in the short term. Traders with a short-term view should consider taking fresh long positions only on a strong break above 27,000 levels with a fixed stop-loss. On the other hand, only a tumble below 25,500 will alter the current uptrend and drag the index lower to 25,200 and 25,000 levels.

Global cues

Last week, the Dow Jones Industrial Average zoomed 1,252 points or 5.2 per cent to close at 25,538.4. It now tests 25,500 levels. A further rally above this level will strengthen the up-move and take the index up to 26,000 in the short term. On the other hand, if it falls below the key support level of 25,000, it will regain the bearish momentum, dragging the index to 24,700 and 24,500 levels.



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