Technical Analysis

Index outlook: All eyes on the RBI

Yoganand D | Updated on June 01, 2019 Published on June 01, 2019

The indices gained marginally last week; the central bank’s policy meet could set the direction

The key bellwether indices — the Sensex and the Nifty — were unstable and began to witness selling pressure at higher levels last week. With the global markets ending in deep red, the domestic indices could see some selling pressure and profit-booking in the truncated week ahead. Also, the second bi-monthly meeting of the RBI, scheduled on June 6, can bring in some volatility. On the global front, the on-going US trade war, ECB interest rate decision, US trade balance and jobs data are events to watch out for.

Nifty 50 (11,922.8)

Amid volatility, the Nifty extended the up-move by gaining 78 points or 0.66 per cent last week. However, the index tests a key resistance in the 11,200-12,040 band. The daily relative strength index and price rate of change indicators show signs of negative divergence, which implies that trend reversal is on the cards.

A strong fall below the significant support in the 11,700-11,750 zone will start weakening the short-term uptrend and will also be a sign of trend reversal. Such a fall can drag the index down to the ceiling of the recent gap at around 11,600. A further decline below 11,600 can drag it lower, and the index may look for support at 11,500 or 11,400 levels.

That said, an emphatic plunge below 11,400 will alter the short-term uptrend and drag the index down to 11,250 and 11,150 levels in the short term. A conclusive break through the 12,000-mark, which is a key psychological level, can lead to a fresh rally. In that case, the index can continue to trend up to 12,200 and 12,500 over the short to medium term. Those with a medium-term perspective can remain invested with a fixed stop-loss at 11,350 levels.

Medium-term trend: Although the index faces volatility in the short term, the medium-term trend is up. As long as it continues to trade above the key medium-term support in the 11,000-11,100 band, the trend will stay intact. We reiterate that a decisive break above 12,000 can take the index up to 12,500 over the medium term. Conversely, an emphatic tumble below the key support band between 11,000 and 11,100 will mar the uptrend and drag the index down to 10,800 and 10,600 levels. Key immediate supports are placed at 11,700 and 11,500 levels.

Sensex (39,714.20)

The index moved up 279 points or 0.7 per cent last week in the midst of volatility. The Sensex experiences selling pressure at higher levels and it now tests resistance at the 40,000-mark, which is a key psychological barrier.

A strong break above this level can take the index to new highs at 40,400 and 40,800 levels over the medium term.

On the contrary, an inability to move beyond 40,000 can lead to a corrective decline, and the index can find support at 39,000, 38,600 and 38,000 — the floor of the recent gap.

A decisive slump below 38,000 will be a threat to the short-term uptrend. Subsequent key supports are placed at 37,500 and 37,000 levels. A sideways consolidation phase in the 38,000-40,000 band can be seen if the index reverses down from the current hurdle.

Nifty Bank (31,375.4)

Last week, the Nifty Bank index was also choppy and climbed 162 points or 0.5 per cent. The index tested the key resistance at 31,500 and has formed a spinning top candlestick pattern in the weekly chart, implying indecisiveness. Traders should, thus, tread with caution in the ensuing truncated-week.

A fall below the key support level of 31,000 can pull the index down to 30,500 in the near term. A further decline below 30,500 can drag it lower to 30,250 and 30,000 in the short term. Traders with a short term view can consider initiating fresh short positions on a decisive fall below 31,000 with a fixed stop-loss.

To alter the short-term uptrend, the index needs to plummet below 29,500. Next key support is at 29,000. On the other hand, a strong rally above the immediate resistance level of 31,500 can bring back bullish momentum and take the index up to 31,700 and32,000 in the short to medium term.

Global cues

The Dow Jones Industrial Average has resumed its down-move and plunged 770 points or 3 per cent last week to close at 24,815. The index has decisively breached a key support at 25,000. The short-term downtrend, that has been in place since encountering a significant resistance at 26,500 this April, can continue in the ensuing week.

The index can test support at 24,500. An emphatic decline below this base level can strengthen the downtrend and drag it down to 24,000 over the medium term.

On the upside, a move above 25,000 can witness a corrective rally to 25,200 and 25,500 levels. Only a conclusive break above 26,000 will alter the downtrend and take the index up to 26,300 and 26,500 levels.

The Nikkei 225 index tumbled 516 points or 2.4 per cent last week to close at 20,601.1.

It could test support at 20,500 in the near term. A further fall below this level will reinforce the short-term downtrend and drag the index down to 20,300 and 20,000 levels in the short term. Resistances are at 21,000 and 21,300 levels.

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