In the truncated week, the benchmark indices — the Sensex and the Nifty — witnessed a strong rally initially, but came under pressure thereafter. Nonetheless, both indices managed to end the week on an upbeat note. In the coming week, the focus will be on the global markets, amid escalating trade tensions between the US and China. US GDP data for the second quarter will be released on Wednesday.
Both the Nifty and the Sensex could move sideways ahead of the August month derivative expiry. Investors should tread with caution in the ensuing week.
Nifty (11,557.1)
The Nifty 50 index added 86 points or 0.75 per cent in the midst of volatility. It managed to marginally close above the key resistance level of 11,500.
However, an emphatic breakthrough is required to strengthen the short-term uptrend.
Short-term trend: The index has been on a short-term uptrend since taking support at around 10,550 in late June this year. Although the contract closed slightly above the vital resistance level of 11,500, it continues to test this barrier. The indicators and oscillators in the daily chart continue to display signs of weakness.
Further, the daily indicators such as relative strength index and price rate of change display negative divergence, indicating the possibility of a trend reversal in the near term.
Amid volatility, the index continues to inch higher over the past two weeks. There has been a decrease in daily volumes over the last two weeks. Ahead of the August month derivatives expiry, traders with a short-term perspective should remain watchful in the coming week. A decisive rally above 11,500 levels and a clear close above the immediate resistance level of 11,600 can strengthen the bullish momentum and pave way for an up-move to 11,655 and 11,700 levels.
A downward reversal from the current resistance zone can drag the index lower to 11,450 and 11,340 levels. A conclusive break below the vital support level of 11,340 will drag the index lower to 11,210 and 11,150 in the short term.
We reiterate that as long as the index trades above 11,150 levels, the short-term uptrend will remain intact.
However a breakthrough of this support level will strengthen the bearish momentum and pull the index lower to 11,065 and 10,935 levels. Traders with a short-term view can hold the long positions with a stop-loss at 11,150 levels. Also, consider booking partial profits if the index fails to sustain above 11,500 level. Next supports below 11,150 are placed at 10,850 and 10,700.
Medium-term trend: The medium-term uptrend that has been in place since taking support at 9,951 in late March 2018, remains intact. The index now tests a key resistance ahead at 11,500.
A strong weekly close above this resistance is required to strengthen the uptrend and take the index higher to 11,600 and 11,887 over the medium term. Significant medium-term supports are placed at 11,100 and 10,800.
A downward reversal and a corrective fall can find support in the 11,000-11,110 range. Failure to hold above this support band will be a threat to the uptrend. In such a scenario, the index can decline and test next support placed at 10,800 or at 10,600 over the medium term.
Sensex (38,251.8)
Last week, the Sensex climbed 304 points or 0.8 per cent, surpassing the key resistance at 38,000. However, sustainability above this is required to confirm the breakthrough of the barrier. The index had reached the short-term targets of 38,200 and 38,400 mentioned last week. Further rally above 38,400 can take it higher to 38,600 and 38,900 levels in the short term.
The daily relative strength index and the price rate of change indicators display negative divergence, implying a potential trend reversal.
Moreover, the weekly indicators and oscillators feature in the overbought territory. But a failure to sustain above 38,000 level can pull the index down to 37,600 and then to 37,200 in the ensuing weeks.
Next significant support is at 37,000 and a strong weekly close below this base level can pull the index lower to the next key supports level of 36,600 and 36,500.
Nifty Bank (27,834.7)
The Bank Nifty faced a key resistance at 28,350 last week and began to decline. It fell 293 points or 1 per cent in the previous week, slipping below the key immediate support level of 28,000.
The index now tests next support at 27,800. The indicators in the daily chart are trending down, backing the ongoing down move.
A strong plunge below 27,800 levels can reinforce the selling pressure and drag the index down to 27,500 levels.
Traders can make use of rallies to initiate short positions with a fixed stop-loss at 27,950 levels. Further decline below 27,500 can drag the index down to 27,000 and 26,500 in the short term. Subsequent supports are placed at 26,250 and 26,000 levels.
On the other hand, a decisive move above the immediate resistance level of 28,000 can take the index higher to 28,350.
Further rally beyond 28,350 can take the index northwards to 28,500 and then to 29,000 in the medium term.