Technical Analysis

CNX Bank Index hovering at crucial level

Yoganand D | Updated on June 16, 2012 Published on June 16, 2012

In this week's dissector column we take a look at CNX Bank Index that crawled higher by 65 points or 0.7 per cent to close at 10,064.8 and CNX IT Index which surged 158 points or 2.7 per cent to finish at 6,134.4.

CNX Bank Index

Long-term view: After peaking out at a lifetime high of 13,303 in November 2010, the CNX Bank Index was on an intermediate-term downtrend until it found base around 8,000 in December 2011. The index has a significant long-term support in the band between 8,000 and 8,300; this level also coincides with the 50 per cent Fibonacci retracement level of its up-move between March 2009 and November 2010. Important long-term resistance is positioned in the zone between 11,000 and 11,200. A significant breakthrough of this resistance zone will strengthen the long-term uptrend of the index that has been in place since the March 2009 trough at around 3,400. The index can trend upwards and encounter resistances at 12,000 and 13,000 in the long-term.

However, an inability to rally above the resistance zone between 11,000 and 11,200 will confine the index to consolidating in a broad range between 8,000 and 11,200. On the downside, a decisive fall below 8,000 will propel the index down to 7,000 which is a long-term trend deciding level. Only a strong tumble below 7,000 will mitigate its long-term uptrend and pull the index lower to 6,300 and 6,400 band.

Medium-term view: The CNX Bank Index bottomed out around 8,000 in December 2011 and has been on a medium-term uptrend. However, the index met with a key resistance at 11,200 in February 2012 and started to decline. The index then took support in the base zone between 9,000 and 9,200, in mid-May and early June this year and bounced upwards.

In the week before last, the index zoomed close to 8 per cent forming a bullish engulfing candlestick pattern in the weekly chart. This is a bullish reversal pattern. The index appears to have resumed its medium-term uptrend helped by positive divergence in the daily price rate of change indicator. It has breached its 200-day moving average and is hovering well above it.

Nevertheless, the index is currently testing a key resistance band between 10,000 and 10,150. The daily relative strength index is on the brink of entering the bullish zone and the weekly RSI is inching higher in the neutral region towards this zone. The daily moving average convergence divergence indicator is moving higher in line with the index and is likely to feature in the positive territory implying upward momentum.

However, we notice the formation of a spinning top candlestick pattern in the weekly chart interpreting indecisiveness. A strong break out of the resistance band between 10,000 and 10,150 will reinforce the bullish momentum and push the index higher to 10,500 initially and then to 11,000 in the medium-term. Inability to break through this will pull the index down to 9,500 and 9,000. An emphatic decline below 9,000 will mar the medium-term uptrend and drag the index lower to 8,500 or even to 8,000 in the same time frame.

CNX IT Index

Ever since bottoming out in early 2009 at a trough of 2,000, the CNX IT Index has been on a long-term uptrend. In August 2011, the index found support around 5,000 and continued its long-term uptrend. Since then, the index has been on an intermediate-term uptrend. However, during mid-April and May 2012 this uptrend was threatened as the index was testing key trend deciding level around 5,800. The index managed to hold above this level and appears to have resumed its intermediate-term uptrend.

The CNX IT Index has key long-term resistance at 6,500 levels. Only a conclusive rally above this level will lift the index higher to 7,000 and then to 7,300 and 7,500 band in the long-term horizon. Nevertheless, a decisive breach of the key long-term support base at 5,800 will pull the index down to 5,500. Next support for the index is at 5,000. A decline below this level will drag the index down to 4,730 and 4,500 in the long-term.

Medium-term view: Significant support in the range between 5,700 and 5,800 has been providing base for the index since November 2011. Last month, the index took support from this range and started moving higher. The index is now facing resistance at 6,200 levels. The daily RSI has entered the positive zone and the weekly RSI is moving upwards. The daily MACD is on the brink of entering the positive terrain implying upward momentum. We believe that a strong jump above 6,200 level will take the index higher to 6,350. But, a strong rally above 6,350 is required to confirm that the index has emphatically resumed its intermediate-term uptrend. In that scenario, the index can trend northwards to 6,600 and 6,800 in the medium-term.

Conversely, damage of the significant support range between 5,700 and 5,800 will mitigate its intermediate-term uptrend. This will pave the way for a decline to 5,400 and then to 5,000 in the medium-term.


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