Technical Analysis

Outlook remains positive for indices

Gurumurthy K | Updated on November 17, 2018 Published on November 17, 2018

A bullish inverted head and shoulder pattern means that indices could extend their upmove

Indian benchmark indices remained insulated from the sell-off in the major global equity market last week.

While indices like the US’s Dow Jones Industrial Average and Japan’s Nikkei 225 were down over 2 per cent and Europe’s DAX and FTSE fell more than 1 per cent, India’s Sensex and Nifty 50 managed to inch higher and close the week in the green for the third consecutive week. The Sensex closed at 35,457.16, up 0.85 per cent for the week and the Nifty 50 closed 0.92 per cent higher at 10,862.2.

A strong recovery in the rupee after crude oil prices extended their fall for the sixth consecutive week has been providing support to the equity segment. Oil price movement will need a close watch as any sharp reversal could halt the up-move in the Indian indices.

All eyes are on the RBI’s board meeting on November 19, when the Centre and the Central Bank are expected to resolve key issues. This could cause volatility in the market this week.

Nifty 50 (10,682.2)

The Nifty 50 index dipped in the initial part of the week. However, it managed to reverse sharply higher from the low of 10,440.55 and recovered all the losses. The index has closed the week at 10,682.2, up 0.92 per cent.

Short-term trend: The Nifty 50 index has an immediate resistance at 10,710. A strong break above it can boost the momentum. Such a break will take the index initially higher to 10,755.

A further decisive break above 10,755 will then increase the likelihood of the index targeting 10,835 and 10,880 in the coming weeks. Such a rally will confirm the complex inverted head and shoulder pattern formed on the daily chart.

The neck line support of this pattern is poised around 10,580, which will be a key level to watch in the near term.

As long as the index sustains above this support, there is a strong likelihood of the index targeting 10,950 and 11,000 levels over the short term.

The bullish outlook will get negated if the Nifty 50 index breaks decisively below 10,580. Such a break will drag the index initially lower to 10,400.

A further break below 10,400 will then increase the likelihood of the index tumbling towards 10,100 and 10,000.

High-risk appetite investors can go long at current levels and on dips at 10,620 with a stop-loss at 10,350.

Medium-term trend: The bounce-back move that has been in place over the last three weeks from around the psychological level of 10,000 keeps the medium-term uptrend intact. However, the recent bounce-back has to breach the 10,900-11,000 resistance zone to confirm the resumption of the overall medium-term uptrend. Such a break can take the index higher to 11,500 over the medium term.

But an inability to breach 11,000 in the coming weeks can drag the index lower to 10,600 and 10,500 again.

It will also keep open the possibilities for the index declining below the key medium-term support level of 10,000. A strong break below 10,000 will see the index tumbling towards 9,500.

Sensex (35,457.2)

Sensex has been getting strong support around 34,650 since the beginning of this month. It fell to a low of 34,672 in the initial part of last week and reversed higher recovering all the loss.

The index has breached the psychological level of ₹35,000 decisively and has closed 0.85 per cent higher in the past week at 35,457.

The level of 35,250 will now act as a key near-term support. A break below this support can drag the index lower to 34,500 and 34,300 in the near term. But as long as Sensex trades above 35,250, there is a strong likelihood of the index moving higher to 35,900 and 36,000 in the coming weeks.

Cluster of resistances are poised between 36,000 and 36,300. Whether the Sensex manages to breach 36,300 or not will determine the direction of next move.

A decisive break above 36,300 will see the index targeting 36,800 and 37,300 thereafter. But a pull-back from 36,300 can drag the Sensex to 35,000 or even lower.

Nifty Bank (26,245.55)

The Nifty Bank index was up 1.8 per cent last week. The index has been broadly range-bound between 23,000 and 28,400 for a prolonged period of time since July last year. Within this range, the index formed a base around 24,000 in October and has been moving higher over the last few weeks. The outlook is bullish with a double-bottom pattern on the daily chart. Strong support is in the 25,900-25,800 zone.

As long as the index remains above this support zone, a rally to 27,000 is likely in the coming weeks. It will also keep the broader sideways range intact and the possibility of the index targeting 28,000 and 28,400 over the medium term is high.

Global cues

The Dow Jones Industrial Average snapped its two-week rally. The index fell over 2 per cent last week. However, the index has managed to bounce towards the end of the week from its low of 24,787. If it manages to sustain higher, the bounce-back move can extend to 26,000 and 26,200 levels. The index will come under pressure if it declines decisively below 24,800. In such a scenario, the Dow Jones Industrial Average can fall initially to 24,500. A further break below 24,500 will then increase the likelihood of the index tumbling towards 24,000 thereafter.

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