Index Outlook: Key indices take a breather

The Sensex and the Nifty ended the previous week, marginally in the negative zone

The week ago was a lacklustre one for both global as well as domestic equity markets, with both ending on a flat note, amid volatility. The Sensex and the Nifty finished the week marginally in the negative territory. The beginning of the Q4 earnings announcement and the progress of the Lok Sabha election could keep key benchmark indices choppy in the coming truncated week. The markets are closed on Wednesday and Friday on account of Mahavir Jayanti and Good Friday respectively. Hence, traders should remain watchful. The rupee was also choppy against the dollar last week and is treading a vital zone. On the global front, the upcoming FOMC minutes and ECB rate decision can provide direction to the global investors in the midst of US-China trade war.

Nifty 50 (11,643.4)

Last week also, the Nifty index marginally fell by 22 points or 0.2 per cent with low volume. The index has formed a small hanging man candlestick pattern in the weekly chart that deciphers a reversal pattern, but needs confirmation. Amid volatility, the index continues to test a key resistance in the 11,700-11,750 band.

An emphatic break above this hurdle is needed to strengthen the bullish momentum and take the index up to 11,800 and 11,900 in the near term. Next vital resistance is at 12,000. The daily relative strength index and the price rate of change indicators show negative divergence, indicating that trend reversal could be in the offing. Thereafter, traders should tread with caution in the near term.

 

 

On the other hand, a strong tumble below the immediate base level of 11,500 can renew the selling pressure and drag the index lower. It can fall to 11,400 levels initially and then to 11,300 over the short term. Subsequent key support for the index below 11,300 is in the 11,000-11,100 zone.

We restate that only a strong fall below the key support level of 11,000 will diminish the short-term uptrend and drag the index lower to 10,800 levels. Next crucial supports are at 10,600 and 10,400 levels.

Medium-term trend: The medium-term trend has been up, since the index found support at 11,000 in October 2018. As long as the index hovers above the key trend-deciding support level of 10,600, the medium-term uptrend will remain in place. A conclusive break above the resistance in the 11,700-11,750 zone will reinforce the bullish momentum and push the index northwards to 11,900 and 12,000 levels. On the other hand, an emphatic plunge below the key support level of 10,600 will mar the uptrend and drag the index lower to 10,400 and 10,000 levels over the medium term.

Sensex (38,767.1)

The Sensex was range-bound and closed the week, declining 95 points or 0.24 per cent. It formed a hanging man candlestick pattern in the weekly chart, which is a reversal pattern. The index continues to test a key barrier in the 38,800-39,000 band. A strong break above this resistance zone will strengthen the uptrend and take the index up to 39,400 and 39,800 levels over the medium term.

But failure to move beyond the current resistance can pull the index down to 38,200 and 37,800 in the short term. A strong downward break-out of the significant support level at 37,800 can drag the index lower to 37,500 and 37,000. Next key support is at 36,500. The short-term uptrend will be under threat if the index slumps below 36,500 levels. In that case , the decline can continue and the index can test supports at 36,400 and 36,200 levels. As long as the index trades above 35,800, the medium-term uptrend will remain in place. Investors with a medium-term horizon can stay invested with a stop-loss at 36,400 levels.

Nifty Bank (29,938.5)

The Nifty Bank index underperformed the key bellwether indices. The index fell by 146 points or 0.5 per cent. After testing a key resistance level of 30,500 in the recent times, the index began the decline. It has been in a corrective fall over the past two weeks.

The daily relative strength index and price rate of change indicator show negative divergences that signify trend reversal in on the brink. A conclusive slump below the vital base level of 29,500 will drag the index down to 29,280 and 29,000 levels in the short term. A strong fall below the next crucial support level of 28,500 will alter the short-term uptrend and drag the index down to 28,000 and 27,500 levels

Traders with a short-term perspective should trend with caution and can initiate fresh short positions if the index fails to move beyond 30,200 levels with a fixed stop-loss. On the upside, a strong breakthrough of the key resistance at 30,500 is needed to reinforce the positive momentum and take the index up to 31,000. The 31,500 and 32,000 levels are the next key resistances to note.

Global cues

Last week, the Dow Jones Industrial Average was choppy and closed on a flat note at 26,412. The index continues to face resistance ahead at 26,500. A strong break above this level can take it up to 27,000 in the short term. But if the index reverses down from the 26,500, it can witness a corrective decline in the near term. Supports at 26,250 and 26,000 can provide base. A further tumble below 26,000 can drag the index down to 25,500 in the short term. Subsequent supports are at 25,200 and 25,000.

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