Technical Analysis

Indices struggle to surpass key barrier

Yoganand D | Updated on November 25, 2018 Published on November 24, 2018

The Nifty and the Sensex retreated due to selling pressure; supports can give cushion

Despite the stalemate between the RBI and the Centre getting resolved peacefully, global markets dragged the benchmark indices lower. Strengthening rupee and declining crude oil price have failed to cushion the decline.

While US light crude oil has tumbled 11 per cent in the previous week to close at $50.42 per barrel, the sharp fall in the US markets last week can keep the bearish momentum intact in the ensuing week as well.

 

 

 

 

Domestic bellwether indices — the Nifty and the Sensex — could remain volatile and experience selling pressure at higher levels, as the November month derivative expiry is on the cards. The declining crude oil and the US markets will be in limelight once again. US GDP data and FOMC minutes can provide direction to the US markets.

Nifty (10,526.7)

In the past truncated week, the Nifty 50 index rallied initially, but encountered resistance and saw sharp declines on the back of global markets’ slump. It has declined 155 points or 1.46 per cent.

Short-term trend: The short-term trend continues to be down for the Nifty index. After encountering resistance at around 10,775, the index resumed its downtrend. The 50- as well as 200-day moving averages also capped the up-side. It has formed a bearish engulfing candlestick pattern in the weekly chart depicting halt of the recent corrective rally and a near-term decline.

That said, such declines in the index can find support at 10,400 and 10,300 levels. An upward reversal from either of these supports can take the index higher to 10,600 and 10,775 levels once again. The index has the crucial trend-deciding resistances in the 10,700-10,800 band.

A strong break above 10,800 will alter the short-term downtrend and take the index northwards to 11,000 and 11,100 levels in the short- to medium-term horizon.

But a decisive plunge below the key support level of 10,300 will underpin the bearish momentum and drag the index down to 10,100 and 10,000-mark in the short term. Next key supports below 10,000 are placed at 9,800 and 9,700.

Medium-term trend: The index has crucial medium-term support at 10,000, from which it reversed higher in late October. Going forward, it could face a vital resistance at 11,000. A conclusive breakthrough of this barrier will reinforce the bullishness and take the index up to 11,300 and 11,500 over the medium term. On the other hand, an emphatic fall below the key psychological support level of 10,000 will pull the index lower to 9,900, which is the next key support. A further fall can drag the Nifty index lower to 9,700 and 9,500 levels in the medium term.

Sensex (34,981)

After encountering a vital resistance in the 35,800-36,000 band, the Sensex resumed its short-term downtrend last week. It declined 476 points or 1.34 per cent. The index has formed a bearish engulfing candlestick pattern in the weekly chart, signifying a near-term trend reversal.

Continuation of the decline can find support at 34,600 and 34,400 levels. But a plunge below these supports can drag the index lower to the next base levels at 34,000 and 33,800. Subsequent supports are at 33,600 and 33,400.

Conversely, a strong break above 35,800-36,000 resistance band will strengthen the up-move and take the index higher to 36,500, which is a key trend-deciding level. A break above this level can pave way for a rally to 37,000 and 37,400 over the medium term.

Nifty Bank (25,999.4)

The Nifty Bank index also declined last week, slumping 246 points or 0.94 per cent. The index tests a crucial resistance at the current levels.

The 50 per cent Fibonacci retracement level of the prior downtrend and the 200-day moving average are in the 26,000-26,300 band. Moreover, the index has key medium-term resistance at 26,500. A strong rally beyond this hurdle is required to strengthen the corrective up-move that commenced in late October and alter the short-term downtrend.

In that scenario, the index can trend upwards and test subsequent resistance at 27,000 and 27,500 levels in the short to medium term.

However, failure to move beyond 26,500 can drag it lower to 25,700 and 25,500 levels. A conclusive tumble below 25,500 can pull the index lower to 25,000 and 24,500 in the medium term. Traders with a short-term perspective should tread with caution and consider taking long positions only on a strong rally above 26,500 levels, with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average plummeted 1,127 points or 4.4 per cent last week to close at 24,285.9. The index decisively breached a key supports at 25,000 and 24,500 levels.

Short-term outlook is bearish. It can extend the downtrend and test supports at 24,000 and 23,700 in the short term. Key resistances are placed at 24,500 and 24,700 levels.

A strong rally beyond 25,500 is needed to alter the short-term downtrend that has been in place from the October high of 26,951. Subsequent targets are 25,800 and 26,000 levels.

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