Technical Analysis

Index Outlook: Indices rule at new highs

Yoganand D | Updated on April 21, 2019 Published on April 21, 2019

But both the Sensex and the Nifty show signs of weakness


The domestic equity indices — the Sensex and the Nifty — closed the truncated week on a positive note. However, the indicators are showing signs of selling pressure; investors should be wary.

Nifty 50 (11,752.8)

The Nifty index advanced, gaining 109 points or 0.9 per cent, amid volatility in the previous week. After an initial rally, the index recorded a new high at 11,856 on Thursday and began to decline on account of selling pressure as well as the profit-taking ahead of the long weekend.

The index continues to test a key resistance in the 11,700-11,750 zone. We reiterate that a clear break-out from this resistance is required to reinforce the bullish momentum and take the index higher to 11,850 and 11,900 in the ensuing weeks. A subsequent resistance is at 12,000 which is a psychological level.

The indicators and oscillators in the daily chart are showing signs of weakness. The weekly indicators are near the overbought territory, implying that investors need to be cautious in the near term. Any corrective decline can find supports at 11,600 and 11,500 levels.

But a conclusive plunge below 11,500 can intensify the selling pressure and pull the index further down. In such a scenario, the index can slip to 11,400 and then to 11,300 in the short term.

The next vital base after 11,300 is in the 11,000-11,100 range. An emphatic slump below 11,000 will mitigate the short-term up-trend and pull the index down to 10,800 levels. Key supports thereafter are at 10,600 and 10,400 levels.



Medium-term trend: The medium-term trend is up. A strong break above the current resistance band of 11,700-11,750 will underpin the up-trend and take the index higher to 11,900 and 12,000 levels in the medium term. That said, a decisive fall below the key support at 10,600 will weaken the up-trend and pull the index down to 10,400 and 10,000 levels in the same time frame.

Sensex (39,140.2)

Last week, the Sensex advanced 373 points or 0.96 per cent. It registered a new high at 39,487 on Thursday. A corrective decline can find supports at 38,800 and 38,600 in the near term.

A further slip below 38,600 can drag the index lower to 38,200 and 37,800 in the ensuing weeks. A strong downward break-out of the significant support level at 37,800 can drag the index lower to 37,500 and 37,000.

As long as the index trades above the key base level of 36,500, the short-term up-trend will remain intact. But a strong plunge below this level can pull the Sensex lower to test the supports at 36,400 and 36,200 levels.

As long as the index trades above 35,800, the medium-term up-trend will stay intact. Investors with a medium-term view can remain invested with a stop-loss at 36,400 levels.

On the upside, a decisive break above the immediate resistance level of 39,400 can take the index northwards to 39,800 and 40,000 in the short term.

Nifty Bank (30,223.4)

After an initial rally, the Nifty Bank index fell 1 per cent on Thursday, giving up some of the initial gains. However, the index managed to end the week advancing 285 points or 0.95 per cent. Testing a resistance at 30,500, the index slumped, forming a bearish engulfing candlestick pattern on Thursday — a bearish reversal pattern.

A possibility of a trend reversal is also evident from the negative divergence displayed in the relative strength index as well as price rate of change indicator. The index has near-term supports at 30,000, 29,780 and 29,500.

An emphatic tumble below the key support level of 29,500 can pull the index lower to 29,280 and 29,000 levels in the short term.

A decisive decline below the subsequent key support level of 28,500 will mar the short-term up-trend and pull the index down to the next base level of 28,000 and 27,500.

On the other hand, a strong rally above the immediate resistance at 30,500 can bring back buying interest and take the index northwards to 31,000.

The next key resistances are at 31,500 and 32,000 levels. Traders with a short-term perspective can go short if the index fails to move beyond 30,500 levels with a fixed stop-loss.

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