Technical Analysis

Index Outlook: Indices to remain volatile

Yoganand D | Updated on June 22, 2019 Published on June 22, 2019

The Sensex and the Nifty continue to face resistance. Investors should be cautious

The key bellwether indices — the Sensex and the Nifty — continued to experience selling pressure at higher levels and retreated in the later part of the week. In the ensuing week, the weakening rupee, progress of the monsoon and the June month derivatives expire are key factors to note. Globally, the Fed kept rates unchanged, opening the door for a rate cut in the future and lifting global markets. But continued trade war concerns and a slowing global economy can keep global markets choppy.

Nifty 50 (11,724.1)

The Nifty index continued to remain volatile and slumped 99 points or 0.84 per cent last week. It tests a key support in the 11,700-11,750 band with a negative bias.

The index recorded an intra-week high at 11,844 and failed to surpass a key immediate resistance at 11,850 levels. Subsequently, it began to decline. A strong break of 11,850 can encounter next resistance in the 12,000-12,040 range.

A further break out of this barrier will pave the way for an up-move to 12,200 and 12,500 over the short to medium term. However, inability to move beyond 11,850 will keep the bias negative. In that case, the index can continue to trend downwards. A strong tumble under 11,700 can drag the index down to the subsequent key support at 11,600. This will deteriorate the short-term uptrend and indicate the possibility of a trend reversal.

We restate that a conclusive plunge below the significant support level of 11,600 can pull the index down to 11,500 or 11,400 levels in the short term.

A further slump below 11,400 will mitigate the short-term uptrend that has been in place since February.

The index can trend downwards to the key supports at 11,250 and 11,150 levels thereafter. Investors with a medium-term horizon can stay invested with a stop-loss at 11,350 levels.

 

 

Medium-term trend: As long as the index trades above the major support in the 11,000-11,100 zone, the medium-term uptrend will stay intact. A strong rally above 12,000 can push the index up to 12,500 in the medium term.

Conversely, a fall below the 11,000-mark will mar the medium-term uptrend and pull it lower to the subsequent vital support level of 10,800 and 10,600 in the medium term. Meanwhile, the immediate supports to note are pegged at 11,700 and 11,500.

Sensex (39,194.4)

The Sensex witnessed another week of volatility and ended in the negative territory, declining 257 points or 0.65 per cent. The level of 39,600 limited the upside last week. An emphatic decline below the near-term support at 39,000 can drag the index down to 38,600 and 38,000 levels in the coming trading sessions.

Only a strong fall below 38,000 will be a threat to the short-term uptrend that has been in place since early May. Such a fall can pull the index lower to 37,500 and 37,000.

On the upside, a strong rally above the key immediate resistance level of 40,000 is required to reinforce the bullish momentum and push the index higher to 40,400 and 40,800 levels in the medium term. We reaffirm that a sideways consolidation in the wide 38,000-40,000 band is possible if the index struggles to move beyond the 40,000-mark.

Nifty Bank (30,628.3)

Last week, the Nifty Bank index was choppy and slipped marginally. The index closed almost flat forming a doji candlestick pattern in the weekly chart, depicting neutral stance. It now tests a key support at 30,500. If the index fails to move beyond 31,000, the near-term stance will remain bearish and indicate the possibility of breaking below 30,500. Such a downward break can drag the index lower to 30,250 and 30,000 in the short term.

Traders with a short-term view can consider initiating fresh short positions if the index fails to move above 31,000 levels, with a fixed stop-loss. A further decline below 29,500 levels can weaken the short-term uptrend. Thereafter, the index can continue to move downwards to 29,000 in the ensuing weeks.

Conversely, the index needs to conclusively break above 31,000 to bring back bullish momentum and take it higher to 31,500. A further up-move beyond this level can push the index upwards to 31,700 and 32,000 over the short to medium term.

Global cues

In the previous week, the Dow Jones Industrial Average resumed its uptrend and gained 629 points or 2.4 per cent to close at 26,719. However, the index faces a significant resistance ahead at 27,000-mark.

A conclusive break-out of this hurdle will strengthen the uptrend and take the index up to 27,500 and 28,000 over the medium term. But a downward reversal from 27,000 can drag the index down to 26,500. A plunge below this base level can pull the index lower to 26,200 and 26,000 levels. Next supports are at 25,500 and 25,000.

The Nikkei 225 index advanced 141 points or 0.67 per cent last week in the midst of choppiness and ended at 21,258.6. It managed to test resistance at 21,500. A strong break above this level is needed to take the index higher to 22,000 and 22,300 in the ensuing weeks. Supports to note are at 21,000 and 20,500.

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