Technical Analysis

Indices could take a breather

| Updated on September 03, 2018 Published on September 01, 2018

Last week, Sensex and Nifty recorded yet another new high. Tread with caution

After a strong start, the bellwether indices — Sensex and the Nifty — experienced a minor blip due to profit-booking. However, the indices managed to close the week on a strong note, gaining 1 per cent each. Optimistic GDP growth number (8.2 per cent) for the first quarter of 2018-19 reported on Friday can keep markets upbeat.

However, indices need to rally beyond the previous week’s high to strengthen its momentum. On the global front, the on-going trade war could remain in focus and keep markets choppy. The weakening of rupee to a new low against the dollar will also weigh on the markets. Investors should tread with caution as profit-taking and key resistance could limit the upside.

Nifty (11,680.5)

Last week, the Nifty 50 index surged 123 points or 1 per cent, breaching a key level at 11,600. With this rally, the index appears to have decisively breached the key resistance at 11,500, which could now act as a vital support level to watch.

Short-term trend: Since finding support at around 10,550, the index has been steadily trending up. The short-term uptrend is intact. That said, a plunge below 11,500 will weaken the uptrend. Significant supports after 11,500 are at 11,450 and 11,340 levels. On the other hand, the index may witness selling pressure at higher levels.

Also, indicators and oscillators such as relative strength index and price rate of change in the daily chart continue to display negative divergence that signifies a potential downward reversal. Further, the weekly indicators are featuring in the overbought territory, indicating a corrective move.

Amid volatility, the index closed in the green last week. The index now tests resistance at 11,750. A strong rally beyond this level can accelerate the index northwards to 11,887 and 11,950 in the short term.

The ongoing uptrend will remain intact, as long as the index trades above the key support band between 11,150 and 11,200. But a downward breakthrough of this support zone can reinforce the bearishness and drag the index down to 11,065 and 10,935 levels.

Traders with a short-term perspective can hold the long positions with a revised stop-loss at 11,300 levels. Vital supports below 11,150 are pegged at 10,850 and 10,700.

Medium-term trend: The index has been in a medium-term uptrend from the March 2018 low of 9,951. This uptrend continues to be intact for the index and it has conclusively surpassed the key barrier at 11,500. Continuation of the uptrend can encounter resistance at 11,887 and 12,000 levels in the medium term. Key supports for the medium-term are pegged at 11,100 and 10,800.

An emphatic fall below the crucial support band between 11,000 and 11,100 will be a threat to the medium-term uptrend, and the index can decline to 10,800 and 10,600.

Sensex (38,645)

Sensex advanced 393 points or 1 per cent last week. The index advanced in the initial two sessions and subsequently declinedon the back of selling pressure. The index appears to have decisively surpassed the key resistance at 38,000.

The daily relative strength index as well as price rate of change indicators continue to display negative divergence, inferring a potential trend reversal. Any corrective declines can find a significant support at 38,000, while immediate support is placed at 38,400.

On the upside, the index faced resistance at 39,000. An emphatic break above 39,000 will strengthen the short-term uptrend that has been in place since the index found support at around 35,000 in late June.

The index can then move higher to 39,500 and 40,000 in the short-to-medium term. An inability to move beyond 39,000 levels will keep the index under pressure and a sideways movement in the range between 38,000 and 39,000 is possible for a while. That said, if the index fails to sustain above 38,000, it can fall to 37,600 and then to 37,200. Subsequent support for the index is at 37,000 and a decisive weekly close below this support level can drag the index lower to 36,600 and 36,500 in the medium term.

Nifty Bank (28,061.7)

Amid volatility, Bank Nifty climbed 227 points or 0.8 per cent last week. For the past four weeks, the index has been trading in a narrow range between 27,750 and 28,350.

Last week, the index tested the upper boundary and recorded a new high at 28,388, before reversing down. It now tests support at 28,000.

A strong fall below this base level can pull the index down to the lower boundary at 27,750. Both the indicators and oscillators are charting downwards in the daily chart, implying weakness. A further fall below 27,750 will strengthen the selling pressure and pull the Bank Nifty index lower to 27,500. Traders can initiate short positions on a strong fall below 28,000 with a fixed stop-loss at 28,150 levels.

A plunge below 27,500 can extend the down-move, which can find support at 27,000 and 26,500 in the short term. Next vital supports are at 26,250 and 26,000 levels.

Conversely, a conclusive upward breach of the immediate resistance at 28,350 could bring back bullish momentum and take the index northwards to 28,500 and then to 29,000 in the medium term.

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