Technical Analysis

Index Outlook: Indices can continue to test key barrier

Yoganand D | Updated on March 24, 2019 Published on March 23, 2019

The Sensex and the Nifty can witness selling pressure at higher levels

Both the Sensex and the Nifty began the previous week on a positive note and continued to trend upwards, backed by strong rally in Nifty Bank index. The rupee’s strength against the dollar also boosted the equity indices. However, profit-taking at higher levels limited the rally in the key benchmark indices towards the end of the week. The profit-booking and selling pressure can continue in the coming week and the indices could remain under pressure ahead of the March derivatives expiry. Investors should remain watchful in the coming week.

On the global front, the Fed kept the interest rates unchanged and the Bank of England too kept rates on hold last week. The GDP numbers of the US and the UK can lend directions to the global indices.

Nifty 50 (11,456.9)

Testing a key resistance at 11,500, the Nifty index was volatile last week. Amid volatility, the index added 30 points or 0.26 per cent for the week. The index trades way above its 50- and 200-day moving averages. But it continues to test the key resistance at 11,500 and has formed a shooting star candlestick pattern in the weekly chart. A strong fall over the next week can form an evening star pattern. Both these candlestick patterns have bearish implications. Also, the daily relative strength index is retreating from the oversold territory.

Although both the medium and short-term trends are up for the Nifty index, it tests a significant resistance in the band between 11,500 and 11,550. We reiterate that a corrective decline cannot be ruled out now. A downward reversal from the current levels can drag the index down to the key immediate support level of 11,100 or 11,000 levels in the short term. Having said that, a strong tumble below the vital support level of 11,000 will mitigate the short-term uptrend and pull the index lower to 10,800 levels. Subsequent key support is positioned at 10,600. A definite fall below 10,600 can bring back the selling pressure and drag the index down to 10,500 and 10,400.

On the other hand, a strong break above the 11,500-11,550 band will underpin the bullish momentum and take the index northwards to 11,600 and 11,750 levels in the short term.

Medium-term trend: Since taking support at around 11,000 in October 2018, the index has been in a medium-term uptrend. As long as the index trades above the crucial support level of 10,600, the medium-term uptrend remains in place. However, a conclusive slump below 10,600 will mar the uptrend and drag the index down to the next key supports 10,400 and 10,000 levels over the medium term. A strong rally above 11,600 can accelerate the index higher to 11,750 and 11,800 levels over the medium term. Immediate medium-term supports for the index are placed at 11,000 and 10,800 levels.


Sensex (38,164.6)

Last week, the Sensex added 140 points or 0.37 per cent. But after witnessing selling pressure at higher levels, the index formed a shooting star candlestick pattern in the weekly chart, which is a bearish pattern. The index tests a key resistance at 38,400.

A corrective decline from this resistance can pull the index down to 37,500 and then to 37,000 in the short term. But the short-term uptrend will remain in place as long as the index trades above 36,500 levels. On the upside, an emphatic break above 38,400 can take the index northwards to 38,800-39,000 band over the medium term.

But a conclusive fall below 36,500 will alter the short-term downtrend and drag the index down to 36,600 and 36,200 levels. A strong fall below 35,800 is needed to change the medium-term uptrend and drag the index down to 35,500. Investors with a medium-term horizon can remain invested with a stop-loss at 35,800 levels.

Nifty Bank (29,582.5)

In the midst of choppiness, the Nifty Bank index advanced 201 points or 0.7 per cent in the previous week. On Friday, the index fell 0.8 per cent, forming a bearish engulfing candlestick pattern in the daily chart, which is a bearish reversal pattern. In the weekly chart, the index has formed a shooting star candlestick pattern which also has bearish implication. Hence, traders with a short-term perspective should continue to tread with caution in the coming week as well. After a strong rally, the index paused, testing a key resistance at 30,000.

A corrective decline from the current levels is possible and the index can find support at 29,000 or at 28,500 in the near term. Nevertheless, a strong fall below 28,500 can pull the index lower to 28,000 in the short term. Next key supports after 28,000 are pegged at 27,500 and 27,000 levels. Conversely, a decisive rally above 30,000 can take the index higher to 30,500 in the short term. But profit-booking and selling pressure could emerge at higher levels.

Global cues

The Dow Jones Industrial Average has declined 346 points or 1.3 per cent to 25,502 levels last week. The index tested a key resistance at 26,000 and reversed conclusively.

This resistance has been limiting the upside since mid-February. Continuation of the decline can drag the index down to the immediate support level of 25,200 and then to 25,000.

A further slump below this level can drag the index lower to 24,700 and 24,500 levels in the short term.

Conversely, if the index manages to decisively break above the key resistance at 26,000, it will strengthen the uptrend and take the index higher to 26,300 and 26,500 levels in the short to medium term.

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