Index Outlook . Key indices can face resistance ahead

The benchmark indices initially tumbled last week but gained strength latter and witnessed a strong recovery, helped by macro data as well as recovery in the rupee. The Government’s steps to curb the rupee decline, unveiled on Friday, could boost market sentiments in the early part of this week.

Continued US-China trade war could continue to cause volatility in the global markets. With trading truncated next week too, investors should stay cautious.

Nifty (11,515.2)

Following a sharp fall, the Nifty found support at 11,250 and rebounded. But it finally closed on a negative note, falling 73 points or 0.64 per cent for the week.

Short-term trend: The index found support in the 11,250-11,300 band, after retracing 38.2 per cent Fibonacci retracement level of the prior uptrend. Since taking support at around 10,550 in June, the index has been in a short-term uptrend.

However, this uptrend is weakening now. A fall below the key support at 11,250 will start threatening the uptrend. Such a fall can drag the index down to the subsequent vital base zone, which is also a trend-deciding zone in the range between 11,150 and 11,200.

A downward break of this base zone will alter the uptrend and pull the index lower to 10,850 and 10,700. Investors with a short-term perspective can hold the long positions with a revised stop-loss at 11,250. Following a bearish engulfing candlestick pattern, the index formed a hanging man candlestick pattern in the weekly chart. A strong rally beyond 11,700 is needed to negate these patterns. The indicators in the daily chart are moving sideways while, in the weekly chart, they are trending downwards.

After hitting the upper boundary of the Bollinger Bands in late August, the index began to decline and witnessed two weeks of correction. However, last week, it knocked the lower end of the Bollinger Bands and rebounded strongly. With a high degree of volatility, the index can undergo a sideways movement or remain range-bound for a while. The index now faces a key resistance ahead at 11,600.

A strong upward breakthrough can take the index northwards to 11,700 and 11,750 in the short span of time due to choppiness. But the index could endure a sideways phase thereafter. Having said that, if the index tumbles below 11,380, selling pressure could resume and a fall to 11,250 can’t be ruled out.

A decisive rally beyond 11,750 will underpin the bullish momentum and can push the index higher to 11,887 and 11,950 in the short term.

Medium-term trend: The index has been in a medium-term uptrend since the March 2018 trough at around 9,951. The recent sharp fall can affect the medium-term uptrend.

As long as the index trades above the key medium-term support band between 11,000 and 11,100, there won’t be any major threat to the uptrend. But a conclusive slump below 11,000 will be a cause for concern and the index can decline to find supports at 10,800 and 10,600. On the other hand, an emphatic breakthrough of 11,750 will strengthen the primary trend and take the index up to 11,887 and 12,000 in the medium term.

Sensex (38,090.6)

The steep fall in the Sensex during the start of the week found support at around 37,400, where the 50-day moving average and a key support cushioned the index. Subsequently, it staged a strong recovery but failed to close in the positive territory last week. The index fell by 299 points or 0.78 per cent.

Currently, the index has been in a corrective decline that commenced from the recent high of 38,989 levels.

To alter the corrective down-move, the index needs to decisively break above the key resistance at 38,400. Such a break can strengthen the short-term uptrend that has been in place since June and take the index higher to 38,800 or 39,000 in the ensuing weeks.

A convincing break above 39,000 is required to reinforce the medium-term uptrend and take the index up to 39,500 and 40,000 over the short to medium term. That said, inability to move above 39,000 can keep the index in a sideways movement between 38,000 and 39,000 for a short time.

On the downside, the index has crucial supports at 37,600 and 37,400. A slump below these supports can bring back selling pressure and pull the index down to 37,200 and 37,000. Key supports thereafter are at 36,600 and 36,500 levels.

Nifty Bank (27,163.8)

The Bank Nifty breached a key support at 27,000 initially and recorded an intra-week low at 26,555. However, taking support from this low, the index bounced up strongly and managed to close above the key support level of 27,000. For the week, the index fell 317 points or 1.2 per cent. Now, the index faces a significant medium-term resistance ahead at 27,500.

A decisive break-out of this barrier is required to end the corrective fall and take the index higher to 28,000 and then to 28,400 levels in the short term. Traders with a short-term perspective should tread with caution as long as the index trades below 27,500.

Only a decisive breakthrough of 27,500 will be a positive cue for taking fresh long positions with a fixed stop-loss. Nevertheless, a plunge below the immediate supports at 27,000 and 26,800 can strengthen the downtrend and drag the index to 26,500 once again.

Next key supports below 26,500 are placed at 26,250 and 26,000. On the upside, a conclusive rally beyond 28,000 can encounter resistance in the 28,400-28,500 band. A strong break above this zone can pave way for an up-move to 29,000 in the medium term.

Global cues

The Dow Jones Industrial Average advanced 238 points to close at 26,154.6 in the previous week. The index now faces resistance ahead at 26,300.

A strong rally beyond this level can take the index higher to 26,450 and 26,600 in the short term. But a downward reversal from the resistance can drag the index down to 26,000 or even to 25,800 levels.

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