Technical Analysis

Index Outlook: Indices hit the pause button

Yoganand D | Updated on November 10, 2018 Published on November 10, 2018

The Sensex and the Nifty were almost flat last week. It would be wise to stay cautious

It was a subdued week for Indian and most global markets with the exception of the US markets. Almost all the global indices ended on a flat note last week. While the Dow Jones and S&P 500 jumped 2.8 per cent and 2 per cent respectively, the Hang Seng index fell 3.3 per cent.

The Asian markets slumped on Friday after the US Fed left interest rates unchanged in its recent meeting. But the Fed remained on track to progressively tighten borrowing costs, due to the underlying strength in the economy.

The fall in crude oil prices to ₹60.19 per barrel is cushioning the global equity markets. This week, macro economic data such as IIP, CPI and WPI will provide direction to domestic market. The rupee movement and price action of crude oil also need to be observed.

Nifty (10,585.2)

Following a sharp rally, the Nifty 50 paused in the truncated week. The index added 32 points or 0.3 per cent. It currently tests the resistance at 11,600.




Short-term trend: The short-term trend has been down for the Nifty index since recording an all-time high at 11,760 in late August this year. But the index took support at the key base level of 10,000-mark and reversed direction, triggered by positive divergence in the daily indicators. While trending up, the index surpassed its 21-day moving average, which is the initial sign of trend reversal, and hovers well above this average. That said, it is testing a key medium-term resistance at 10,600 which it failed to surpass in mid-October.

A corrective decline from the current resistance can trigger a minor decline and find support at 10,400 and 10,300 in the short term. Only a further fall below 10,300 will strengthen the downtrend and drag the index once again down to 10,100 or 10,000 levels.

On the upside, a conclusive breakthrough 10,600 will reinforce the bullish momentum and take the index northwards to the crucial trend-deciding resistances —10,700 and 10,800. We reaffirm that a decisive breakthrough of 10,800 is required to alter the short-term downtrend and take the index up to 11,000 and 11,100 levels over the short to medium term.

Investors with a medium-term horizon can buy at declines with a stop-loss at 9,950 levels. Key supports below 10,000 are at 9,800 and 9,700.

Medium-term trend: The index is reversing higher from a key medium-term support at 10,000. But a decisive plunge below this key psychological support level can drag it down to the next base at 9,900. Such a fall will reinforce the downtrend. Next vital support at 9,700 and 9,500 levels will come to play over the medium term. In that case, the medium-term trend will be down for the index.

Significant supports below 9,500 are placed at 9,200 and 9,000. Conversely, an emphatic break above the key barrier at 11,000 is needed to change the downtrend. In that scenario, the index can trend upwards to 11,300 and 11,500 over the medium term.

Sensex (35,158.5)

The Sensex climbed 146 points or 0.4 per cent amid volatility in the past week. The index continues to test the key resistance at 35,000. A strong break above this barrier can push the index higher to the 35,800-36,000 band and then to 36,500. That said, the index needs to decisively rally above the key trend-deciding level of 36,500 to alter the short-term downtrend that has been in place since last August.

Ensuing medium-term targets on an emphatic break above this level are 37,000 and then to 37,400 levels. However, failure to decisively move beyond 35,000 can pull the index down to the immediate support level of 34,400. Next key supports are at 34,000; 33,800 and 33,400 levels which are vital to note.

Nifty Bank (25,771)

Last week, the Nifty Bank index climbed marginally by 69 points or 0.27 per cent, following a sharp fall in the week before. Key support at 25,500 can cushion the index in the near term. An upward reversal from this base will strengthen the up-move and take the index up to 26,000 levels. A decisive break above 26,000, where the 200-day moving average is also poised, will reinforce the uptrend and push the index higher to 26,500 in the short term. To alter the short-term downtrend, the index needs to break above 26,500. Key resistances above 26,500 are at 27,000 and 27,500 levels.

However, inability to move beyond 26,000 will keep the index sideways in the 25,500-26,000 band for a while. Traders with a near-term view should tread with caution and consider taking long positions on a conclusive move beyond 26,000, with a fixed stop-loss. On the other hand, a tumble below the immediate support at 25,500 can bring back selling interest or profit-taking and pull the index lower to 25,000. Subsequent supports to note at 24,500 and 24,000.

Global cues

The Dow Jones Industrial Average extended its bullish momentum and surged 719 points or 2.85 per cent to close at 25,989.3. This rally has breached key resistance at 25,500 and strengthened the bullish momentum.

But the index has encountered next key resistance at around 26,200 and tests it. A positive break above this level can take the index northwards to 26,400 and then to 26,700 in the short term. However, a fall below the immediate support at 25,700 can drag it lower to 25,500. Next key supports are placed at 25,300 and 25,000 levels.

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