Technical Analysis

Indices poised at a key hurdle

Yoganand D | Updated on March 09, 2019 Published on March 09, 2019

Both the Sensex and the Nifty advanced last week, but will face resistance ahead

The Sensex and the Nifty index were resilient last week, while global indices such as the Dow Jones and Nikkei 225 ended in the negative territory. Easing of geopolitical tension, strengthening rupee and value buying in mid- as well as small-cap segments kept the domestic equity market trending up.

Further strengthening of the rupee against the greenback and decline in crude oil price can keep the ongoing positive sentiment intact. Also, macro data such as the CPI and the WPI needs a close watch.

On the global front, US retail sales, US CPI inflation data and BoJ rate decision are some of the key events to note. Last week, the European Central Bank held rates and cautioned the market not to expect a hike before 2020.

Nifty 50 (11,035.4)

The Nifty 50 index advanced 171 points or 1.6 per cent in the truncated week. Witnessing buying interest, it conclusively surpassed the immediate resistance at 10,900 as well as the moving average compression last week. The index trades well above its 50 and 200-day moving averages. But it now faces a key resistance at 11,100 and the upper boundary of the ascending channel, which has been in place since late November 2018.

An emphatic break above these barriers will strengthen the bullish momentum and alter the medium-term downtrend. Such a breakthrough will also pave way for an up-move to 11,300 and 11,500 levels in the short term. A further rally beyond 11,500 levels can take the index up to 11,600 and 11,750.

That said, if the index fails to move beyond 11,100 will keep it within the ascending channel pattern, moving sideways in a broad range between 10,600 and 11,100 for a while.

A downward reversal from 11,100 can find supports initially at 10,900 and then at 10,750 and 10,650 levels. However, an emphatic fall below the lower boundary at 10,600 can renew the selling pressure and pull the index lower to 10,500 and 10,400 in the short term. A further slump below the key support level of 10,400 can pull it down to the next vital supports at 10,300 and the 10,100-10,000 band.

Medium-term trend: The index will continue to be in a medium-term downtrend as long as it trades below the key trend-deciding level of 11,100. Within this, the index remains range-bound in the 10,600-11,100 band.

We restate that a strong break above the upper boundary is needed to alter the downtrend and take the index higher to 11,300 and 11,500 in the medium term. On the other hand, a decisive fall below the lower boundary at 10,600 can drag the index down to the next base level of 10,400.

A further fall below 10,400 levels can pull the index lower to 10,000 levels over the medium term. Next key supports are placed at 9,900, 9,700 and 9,500 levels.

Sensex (36,671.4)

Last week, the Sensex advanced 607 points or 1.7 per cent decisively, breaching the moving average compression and a key resistance at 36,400. The index can continue to trend upwards and test the crucial resistance at 37,000, that is also the upper boundary of the sideways range in the near term.

To change the medium-term downtrend that has been in place since registering a 52-week high of 38,989 in August 2018, the index has to convincingly break above 37,000. Such an upward break will reinforce the bullish momentum and take the index higher to 37,400 and 37,600 over the medium term.

On the other hand, any corrective decline can find supports at 36,400 and 36,000 levels. A further fall below 36,000 can drag the index to 35,600 and 35,400 levels.

Next support at 35,000-mark will come to the rescue on a strong slump below 35,400. Subsequent vital supports are pegged at 34,600; 34,400 and 34,000. Investors with a medium-term perspective can stay invested with a stop-loss at 35,400 levels.

Nifty Bank (27,761.8)

The Nifty Bank index gained 717 points or 2.65 per cent last week, outperforming the benchmark indices. It conclusively breached the key resistance at 27,000 while trending up last week, strengthen the medium-term uptrend that has been in place since last October. Regaining the bullish momentum, the index now tests resistance at 27,700.

A strong rally above this barrier can accelerate the index higher to 28,000 and 28,400-28,500 band in the coming weeks. The index trades well above its 50- and 200-day moving averages. The daily relative strength index features in the bullish zone, backing the up-move.

Traders with a short-term view can consider taking fresh long positions on a strong rally above 27,700 with a fixed stop-loss at 27,500 levels. Key supports to note are placed at 27,500 and 27,000 levels. A strong fall below 27,000 can pull the index down to 26,650 and 26,500 levels.

Global cues

The Dow Jones Industrial Average encountered a key resistance at 26,000 recently and reversed direction. Last week, the index plunged 576 points or 2.2 per cent to close at 25,450.2. It has an immediate support at 25,000. A strong fall below this level can drag it lower to 24,700 and 24,500 levels.

On the upside, a strong rally above 25,800 is needed to bring back bullish momentum and take the index up to 26,000 and 26,300 levels. A strong fall below 24,000 will mar the medium-term uptrend that has been in place since last December trough of 21,712 levels. In that scenario, the index can decline to 23,500 and 23,000 levels.

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