Technical Analysis

Indices could face resistance ahead

Yoganand D | Updated on October 14, 2018 Published on October 13, 2018

The Sensex and the Nifty staged a good recovery last week. So, tread with caution

It was a volatile week for the domestic equity markets, with the key indices managing to end on a positive note amid sell-offs in global markets.

Global factors such as the release of the FOMC minutes and that of China GDP numbers, as well the Brexit talks are some of the key events to watch out for in the ensuing week. On the domestic front, result announcements of the quarter ended September 30, 2018 will determine key stock-specific actions. Movement of the rupee against the dollar and the crude-oil price action also need a close watch. However, investors need to tread with caution in the coming truncated week.

Nifty (10,472.5)

Amid volatility and high drama, the Nifty 50 index managed to recoup its intra-week losses and ended the week in the positive territory, advancing 156 points, or 1.5 per cent. Snapping the past five consecutive weeks’ decline, the index closed positive, helped by a strong 2.3 per cent rally on Friday. A key support in the band between 10,200 and 10,300 could cushion the index.

Short-term trend: The short-term trend is down for the index. It has been trending down since recording a new high of 11,760 in late August. After a sharp fall in the week before, the index appears to have found a temporary base in the range between 10,200 and 10,300, and bounced back last week, triggered by positive divergence displayed in the daily indicators such as relative strength index and price rate of change.

The indicators are recovering from the oversold territory and are charting upwards. Both the daily and weekly relative strength indices are on the brink of entering the neutral region from the bearish zone. Moreover, the index hit the lower boundary of the Bollinger Bands last week and bounced back, staging a recovery from the oversold territory. Interestingly, there has been an increase in the daily volume over the past three weeks.

The index faces a key resistance ahead at 10,500. A decisive breach of this barrier will pave way for an up-move to the next resistance at 10,600. The rally could encounter further resistance at 10,754 and 10,800, a significant medium-term resistance. To alter the downtrend, the index needs to break above the psychological barrier of 11,000. Subsequent targets are 11,300 and 11,500.

On the other hand, a plunge below the immediate base level of 10,200 can drag the index lower to 10,100-10,000 levels. The downside could be limited as of now. Investors with a short-term perspective and high risk appetite can take fresh long positions with a stop-loss at 10,150.

Medium-term trend: The recent sharp fall in the index has breached key medium-term support at 10,800 and 10,600. The index has extended its fall below 10,200 levels. The index has almost retracted its prior upmove that had formed between late March and August this year. There is no clear medium-term trend.

An emphatic slump below the key psychological support level of 10,000 and the subsequent key base at 9,000 will strengthen the downtrend and drag the index lower to 9,700 and 9,500 levels in the medium term. The next key supports to note at are at 9,200 and 9,000. Conversely, a strong rally above 11,000 is required to bring back the bullish momentum and take the index northwards to 11,300 and 11,500 levels in the medium term.

Sensex (34,733.5)

Last week, the Sensex advanced 356 points, or 1 per cent, witnessing buying interest. A key support at the 34,000 mark had cushioned the index recently. The rally is backed by good volume in the daily chart. However, the index faces a key resistance going forward at 35,000. A conclusive breach of this barrier will pave way for an upmove to 35,400 and 35,800 levels in the short term. As long as the index trades below 36,500, the rally will be a corrective upmove.

A strong break above 36,500 is required to alter the short-term downtrend and take the index higher to 37,000 and 37,400 levels. On the other hand, a failure to move beyond the 36,500 levels can keep the index consolidating sideways in the wide band between 34,000 and 36,500 for a while. But a tumble below 34,000 can drag the index down to 33,600 and 33,350. Subsequent key support is pegged at 33,000. Immediate supports are at 34,300 and 34,000.

Nifty Bank (25,395.8)

Snapping the five-week fall, the Bank Nifty zoomed 952 points, or 3.9 per cent, last week. This rally was triggered by positive divergence in the daily relative strength index and price rate of change. The daily as well as the weekly RSI have entered the neutral region from the bearish zone. Taking support around 24,500, the index gained amid a choppy market. However, the index faces a key resistance ahead at 25,500. A strong rally above this level can strengthen the up-move and take the index northwards to 26,000. To alter the short-term downtrend that has been in place from the August peak of 28,388, the index needs to decisively move beyond 26,500 levels. Such an upmove will pave way for a rally to 27,000 and 27,500 levels.

That said, if the index fails to move beyond 26,000, it could move sideways in the wide range between 24,500 and 26,000. Conversely, a plunge below the vital base level of 24,500 can drag the index lower to 24,000 and then to 23,600 in the short to medium term. Any corrective decline in the coming week can find support at 25,000 and 24,500. Traders with a short-term view can go long on a strong rally above 25,500 levels with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average nose-dived 1,107 points, or 4.2 per cent, last week, breaking below key supports, and closed at 25,339.9.

However, the index took support at the 25,000 mark and witnessed a corrective upmove on Friday.

But the overall short-term trend is down. It can encounter resistances at 25,500 and 25,650 levels in the in near term and resume its short-term downtrend.

Key resistance above 25,650 is at 26,000. Immediate supports are at 25,180 and 25,000.

A fall below 25,000 can pull the index down to 24,500 in the short term.

 

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