Indices poised at key resistance zone
A corrective fall in the Nifty and the Sensex could be in the offing
The Sensex and the Nifty began the previous week on a strong note, but subsequently turned choppy. A strong buying in the banking sector pushed the banking as well as the benchmark indices marginally higher. However, the slump in global markets on Friday shaved off some of the intra-week gains in the bellwether indices.
The US markets ended on a negative note on Friday, amid concerns over Turkey’s economic crisis. Moreover, the US index futures is also down, pointing to a sombre start in the ensuing week. The bearish global sentiment can offset the positive IIP data that surged to 7 per cent in June.
Domestic markets could continue to take cues from the global markets in the ensuing week, and investors needs to tread with caution as profit-taking could keep the indices under pressure.
Amid volatility, the Nifty 50 index inched higher and recorded a new high at 11,495.2 in the previous week. The index faces resistance ahead at 11,500.
Short-term trend: The short-term trend is indeed up for the Nifty index. Nevertheless, the index faces a challenge in moving past the current key resistance level of 11,500. The short-term up-trend could weaken and there could a potential downward reversal on the cards as the daily indicators, such as relative strength index and price rate of change, are displaying negative divergence. Hence, traders/investors with a short-term perspective should tread with caution in the ensuing truncated week.
A strong plunge below the near-term support level of 11,350 can drag the index down to 11,210 and then to 11,150 in the short term. As long as the index trades above 11,150, there won’t be any threat to the short-term up-trend that has been in place since June. But a strong fall below 11,150 will be the initial signs of trend reversal and will drag the index down to 11,065 and 10,935 levels.
Traders with a short-term view can stay invested with a revised stop-loss at 11,150 levels. Next supports below 10,935 are placed at 10,850 and 10,700. On the other hand, a decisive rally beyond 11,500 is required to strengthen the up-trend and take it northwards to 11,655 and 11,700 levels.
Medium-term trend: The Nifty index has been in a medium-term up-trend since taking support at 9,951 in late March this year. Significant supports for the index are pegged at 11,100 and 10,800. Although the index managed to move beyond the key resistance level of 11,400 last week, the up-move is not convincing enough. Also, the index faces resistance ahead at 11,500. An emphatic breakthrough of this barrier can take the index higher to 11,600 and 11,887 over the medium term. Conversely, corrective declines can find support in the band between 11,000 and 11,110. That said, a decisive slump below this support band will start weakening the up-trend. Ensuing decline can take support either at 10,800 or at 10,600 in the medium term.
Last week, the Sensex rallied 313 points or 0.8 per cent. Encountering resistance at 38,000, the index fell by 150 points on Friday, forming a bearish engulfing candlestick pattern in the daily chart. This implies that a short-term trend reversal is in the offing. Moreover, the daily indicators are also showing negative divergence, backing the trend reversal.
A strong fall below the key support level of 37,600 can extend the corrective decline to 37,200 and 37,000 in the coming weeks. Only a conclusive fall below 37,000 will weaken the up-trend and pull the index down to the next support level of 36,600 and 36,500. On the upside, a conclusive breach of the current barrier can pave way for an up-move to 38,000 and then to 38,400 levels.
Nifty Bank (28,124.2)
The Bank Nifty advanced 428 points or 1.5 per cent last week. Short-term trend is up for the index. But a sharp fall on Friday has formed a bearish engulfing candlestick pattern, implying a near-term trend reversal. A fall below the key supports at 28,000 and 27,840 will strengthen the down-move and drag the index further down to 27,500 levels.
Traders with a short-term horizon can consider taking profits off the table at this juncture and remain on the sidelines. An emphatic downward breakthrough of the significant support level of 27,500 will start weakening the up-trend and drag the index down to 27,000 levels. Next supports to note are at 26,500, 26,250 and 26,000.
On the other hand, resistances at 28,350 and 28,500 can limit the upside for the index. That said, a decisive rally beyond 28,500 can take the index up to 29,000 in the medium term.
In the previous week, the Dow Jones Industrial Average moved marginally above the resistance level of 25,500, but selling pressure at higher levels and the financial crisis in Turkey dragged the index lower on Friday. The index fell 0.6 per cent to close the week at 25,313. Key supports at 25,000 and 24,700 can cushion the index in the coming weeks. Next key supports are placed at 24,400 and 24,000. Resistance is at 25,500. Only a decisive break above this level can take the index higher to 25,800 and 26,000 levels in the short term.
The Nikkei 225 index tumbled 1.3 per cent on Friday; breaking a key support at 22,500, it closed at 22,298. Key supports are at 22,000 and 21,750. Resistances to note are placed at 22,500 and 22,750 levels.