Technical Analysis

Index Outlook: Key indices test vital resistance

Yoganand D | Updated on March 17, 2019 Published on March 17, 2019

Buying interest pushed the Sensex and the Nifty to a 6-month high. A pause is likely; be alert

Last week, both the Sensex and the Nifty witnessed strong rally, led by momentum in the Bank Nifty, which had surged 5.8 per cent. The indices breaking out of their key barriers has drawn in fresh buyers into the market. The rally in mid- as well as small-cap stocks also supports the up-move. Low WPI inflation and rupee strengthening against the greenback — moving to 69 levels — have also boosted the market rally. In the coming truncated week, the focus will remain on the gaining rupee and the mid- and small-cap segment. There could, however, be some profit-taking at higher levels in thelarge-cap segment and banking space. Hence, investors should stay alert in the coming week. s

On the global front, FOMC meeting, BoE meeting and crude oil price will keep the markets volatile.

Nifty 50 (11,426.8)

Last week, the Nifty 50 index zoomed 391 points or 3.6 per cent, breaking decisively above a vital resistance at 11,000 and a key trend-deciding level at 11,100. Moreover, the index has conclusively moved out of the ascending channel pattern on the upper end, following three months of sideways consolidation. Now, both the medium and short-term trends are up for the Nifty index.

The index trades well above its 50- and 200-day moving averages. The daily relative strength index features in the bullish zone and is likely to touch the overbought territory. The weekly RSI has just entered the bullish zone. Besides, the daily and the weekly price rate of change indicator hovers in the positive terrain, implying buying interest. As the index nears the overbought territory and is likely to test resistance at 11,500, corrective decline cannot be ruled out at this juncture. Any such declines may attract buying interest at lower levels and the index can take support at either at 11,100 or 11,000 levels in the short term. A decisive rally beyond 11,500 can take the index northwards to 11,600 and 11,750 in the short term.

 

 

But a strong plunge below the key base level of 11,000 will alter the short-term uptrend and drag the index down to 10,800 levels. Next key support is placed at 10,600. We reiterate that an emphatic fall below 10,600 can bring back the selling pressure and drag the index down to 10,500 and 10,400.

Medium-term trend: With the recent strong rally in the Nifty index, the medium-term downtrend has altered. Since taking support at around 10,000 in late November, the index has been in a medium-term uptrend. This uptrend will remain in place as long as the index trades above 10,600 levels. Key immediate support is pegged at 11,000 and can provide base.

A strong rally above 11,600 can push the index northwards to 11,750 and then to 11,800 levels over the medium term. On the downside, a conclusive plunge below 10,600 can drag the index down to the next vital supports at 10,400 and then to 10,000 levels over the medium term.

Sensex (38,024.3)

The Sensex has jumped 1,352 points or 3.7 per cent, breaking conclusively above a key barrier at 37,000. With the recent rally, the medium-term trend has turned bullish. That said, minor corrective declines cannot be ignored as the index tests another key hurdle at 38,000 and the daily indicators such as relative strength index as well as price rate of change are in overbought territory. Key support at 37,500 and 37,250 can provide base for the index.

A strong plunge below these levels can find support at 37,000 in the near term. Continuation of the uptrend can take the index higher to 38,400 and 38,800-39,000 band over the medium term. Conversely, a decisive slump below 37,000 can bring back selling pressure and drag the index down to 36,600 and then to 36,200 levels.

Only a strong fall below 35,800 will alter the medium-term uptrend and pull the index down to 35,500. Investors with a medium-term view can stay invested with a stop-loss at 35,800 levels.

Nifty Bank (29,381.4)

The Nifty Bank index skyrocketed 1,619 points or 5.8 per cent, outpacing the key benchmark indices in the previous week. The index has emphatically surpassed a significant resistance in the 28,400-28,500 band and continued register new highs.

After a sharp rally over the past two weeks, the index trades in the overbought territory and tests resistance at 29,500 levels. Hence, a corrective fall cannot be ruled out at this juncture. Traders with a short-term perspective should tread with caution in the ensuing truncated week. Key supports at 29,000 and 28,500 can provide cushion for the index.

But a strong fall below 28,500 can drag the index down to 28,000 in the short term. Subsequent key supports below 28,000 are placed at 27,500 and 27,000 levels. On the upside, a strong break above 29,500 can test psychological resistance at 30,000 in the near term.

Global cues

In the previous week, the Dow Jones Industrial Average rallied, breaking above a key resistance at 25,500. The index added 398 points or 1.6 per cent to close at 25,848.9. It now faces a key resistance ahead at 26,000.

A strong rally above this barrier will reinforce the bullish momentum and take the index northwards to 26,300 and 26,500 levels.

On the downside, a strong tumble below 25,500 may bring back selling interest and pull the index down to 25,200 once again. Next key support is at 25,000. A further fall below this level can drag the index lower to 24,700 and 24,500 levels.

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