Technical Analysis

Dissector: Bank Nifty futures pausing at key support

Yoganand D. | Updated on October 01, 2011 Published on October 01, 2011

Ever since bottoming out from its March 2009 low of Rs 3,290, Bank Nifty has been on an uptrend until it formed a peak at around 13,300 in November 2010. However, the Bank Nifty changed its direction thereafter, triggered by the negative divergence in the daily indicators. Since then, the index has been on an intermediate-term downtrend that has completely retraced the up move between May 2010 low and November peak. Bank Nifty futures found support around 9,000 in late August this year and is currently hovering above this level.

An emphatic breach of the key support level of Rs 9,000 will pull the index down to next support band between 8,000 and 8,250. Long-term uptrend will be under threat only if the index dives below this band and the index can then decline to 7,000 levels. On the other hand, the Bank Nifty has significant longer-term resistance at 10,500 levels. Strong breakthrough of this level is required to signal that the index is resuming its uptrend and it can rally to 11,500 and then to 12,000 levels in the intermediate-term.

Medium-term view

After encountering resistance at 11,500 levels in early July, Bank Nifty (closed at 9,422.6) continued its downward journey and has been on a medium-term downtrend. While trending down, the index decisively penetrated its key support at 10,500 in early August. This support was providing cushion for the index from this January. It currently acts as a key resistance for the index.

The index has been confined between 9,250 and 9,960 band for past one month with negative bias. Tumble below the lower boundary will pull the index down to 8,905 and then to 8,600 levels in the medium-term. Conversely, breaking the ceiling at 9,960 will pave way for an initial rally to 10,200 and then to 10,500. Only a strong up move above 10,500 will reverse the downtrend and push the index higher to 11,000 and to 15,000.

CNX IT Index Futures (5,650)

Since turning around from the first quarter of 2009, the CNX IT Index futures had a strong bull run surpassing its previous peak of 5,855 registered in February 2007 and marked new all-time high at 7,630 this January.

However, it has been on an intermediate-term downhill since its all-time high.

The index found support (5,028) just above its psychological support level of 5,000 in mid August and reversed its direction. CNX IT Index is currently facing key long-term resistance at 5,855. Only a strong breakthrough of this level will take the index higher to 6,170. Next long-term resistance is at 6,500 levels. To reverse the on going intermediate-term downtrend, the index has to move beyond 6,800 levels. However, failure to move above the important hurdle at 6,170 can pull the index down to 5,430 or even lower to 5,000 in the ensuing quarters.

Medium-term view

Though the medium-term trend is down from its July peak of 6,850, the index has managed to retrace 38.2 per cent Fibonacci retracement level of this downtrend. As long as it trades above 5,430, it can trend upwards and test resistance at 5,855 in the short-term. Subsequent resistances are 6,032 and 6,170 levels. Nevertheless, breach of its immediate support at 5,430 can drag the index down to 5,300 and next to 5,000 in the medium-term.

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