Near-term slump cannot be ruled out

The indices reversed direction forming a bearish pattern. Key resistance can limit upside

The domestic indices — the Sensex and the Nifty 50 — began the previous week on a positive note and continued to rally. The RBI’s rate cut of 25 basis points last week had a positive impact on the the market on Thursday. However, Tata Motors’ dismal third quarter performance spooked investors and the indices slumped on Friday. Profit-taking will limit the upside in the indices in the coming week. Investors should remain cautious.

Nifty 50 (10,943.6)

After an initial rally, the Nifty 50 index encountered resistance at around 11,100 and did a volte face on Friday, tumbling over 1 per cent. With this fall, most of the initial gain was wiped out and the index closed the week on a marginal gain of 50 points or 0.46 per cent.

The Nifty has formed an evening doji star candlestick pattern on the daily chart, which is a bearish reversal pattern. The near-term up-move that commenced in late January appears to have come to an end as the pattern is formed at a key resistance level. The index can continue to decline in the near term and significant supports at 10,850 and 10,750 can provide base in the coming weeks.

But failure to find base at these supports can pull the index down to the lower boundary of the ascending channel that has been in place since late November 2018. In such a scenario, the index can consolidate sideways in a wide range between 10,600 and 11,100 for a while.

A conclusive plunge below the key base level of 10,600 can drag the index down to 10,500 and 10,400 in the short term. A further decline below the vital base level of 10,400 can reinforce bearish momentum and pull the index down to the next key supports at 10,300 and the 10,100-10,000 band.

 

On the other hand, an upward break-out of the channel at 11,100 will alter the downtrend and take the index higher to 11,300 and 11,500 levels. A conclusive rally beyond 11,500 can accelerate the index northwards to 11,600 and 11,750.

Medium-term trend: There is no change in the medium-term trend, which continued to be down as the index tested the key trend-deciding level of 11,100 and retreated. A conclusive break of this barrier will alter the downtrend and push the index higher to 11,300 and 11,500.

Conversely, a plunge below the key base level of 10,400 will drag the index down to 10,000 levels in the medium term. Subsequent vital supports are at 9,900, 9,700 and 9,500 levels.

Sensex (36,546.4)

The Sensex also formed an evening star candlestick pattern in the daily chart on Friday, which has bearish implications. The index ended marginally on a positive note, gaining just 77 points or 0.2 per cent in the previous week. After testing key resistance at 37,000, it reversed sharply lower. This down-move can continue in the ensuing week and find support at either 36,200 or 36,000.

A decisive plunge below these supports can drag the index further down to the lower boundary of the ascending channel at 35,600. Next key supports are placed at 35,400 and 35,000.

A strong downward break of 35,000 will underpin the bearish momentum and drag the index lower to 34,600 over the medium term. Subsequent key supports are placed at 34,400 and 34,000. On the upside, an emphatic break above 37,000 will alter the medium-term downtrend and take the index northwards to 37,400 and 37,600 over the medium term.

Nifty Bank (27,294.4)

Amid volatility, the Nifty Bank advanced 208 points or 0.77 per cent last week. The index continues to test significant resistance at 27,500.

A strong break above this vital hurdle will strengthen the uptrend and take it up to 27,700 and 28,000 in the short term.

However, an emphatic plunge below the key immediate support at 27,000 can drag the index down to 26,500 in the short term.

Traders should tread with caution as long as the index is range-bound between 27,000 and 27,500. A strong plunge below 27,000 will be bearish and a cue to initiate fresh short positions with a fixed stop-loss.

Targets are 26,700 and 26,500 levels. A further tumble below 26,500 can drag the index down to 26,000.

But the medium-term uptrend that has been in place since October 2018 will remain intact as long as the index trades above the key base in the 25,800-26,000 band.

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