Technical Analysis

Index Outlook: Poll results may lead to volatility

Yoganand D | Updated on May 19, 2019 Published on May 18, 2019

The Sensex and the Nifty, which saw a strong rally last week, could face resistance

Following an initial slump, the Sensex and the Nifty turned volatile and eventually managed a corrective rally last week. The week ahead is crucial for investors, as the outcome of the Lok Sabha election could trigger turbulence. They should therefore tread with caution. The progress of the monsoon and the rupee movement also need to be watched. On the global front, US trade talks with China and minutes of the Fed meeting could keep the global markets on the edge.

Nifty 50 (11,407.1)

Amid volatility, the Nifty index managed to rally 128 points or 1.14 per cent last week. After an initial slump below the key support level of 11,300, it took base at 11,100 and bounced up in the later part of the week. Subsequently, the index surpassed the barrier at 11,300.

This level could act as key support once again. Any corrective decline can find support at either 11,300 or 11,100. The significant support in the 11,000-11,100 band is vital. A strong tumble below 11,000 will mitigate the short-term uptrend and drag the index down to 10,800 levels. The next supports are at 10,600 and 10,400 levels. The daily and weekly relative strength indices feature in the neutral region. On the upside, the index can face hurdle at 11,500 and 11,600 levels. An emphatic break above 11,600 will strengthen the bullish momentum and take the index up to 11,700 and 11,750 levels in the short term.

A further break-out of the resistance at 11,750 will boost the bullish momentum and take the index up to 11,850 and 11,900 in short term. A key resistance above 11,900 is at 12,000, which is a key psychological level. Investors with a medium-term perspective can take long positions on a strong rally above 11,600, with a fixed stop-loss.

Medium-term trend: With India VIX recording a multi-year high at 29.33 last week, the index can continue to remain volatile in the short to medium term. The medium-term trend continues to remain up.

On a strong fall below the key support level of 11,000, the index can find support in the 10,600 and 10,700 zone. Nevertheless, to alter the uptrend, the index needs to conclusively fall below 10,600. In that case, it can decline to 10,400 and 10,000 levels. On the other hand, a decisive rally beyond the resistance zone of 11,700-11,750 will reinforce the uptrend and push the index up to 11,900 and 12,000 levels over the medium term.

Sensex (37,930.7)

Last week, the Sensex found support at 37,000 and bounced up, backed by strong rally on Friday. The index ended the week, gaining 467 points or 1.24 per cent. It currently tests the resistance at 38,000. A decisive breakthrough of this level can take the index up to 38,600 and 39,000.

An emphatic break-out of 39,000 will enhance the bullish momentum and take the index to 39,400 and 39,800 over the medium term. Inability to move beyond 38,600 will keep the index volatile in the wide range between 37,000 and 38,600 for a while.

On the downside, key supports at 37,500 and 37,000 can provide base on a corrective decline. That said, a conclusive fall below 37,000 can drag the index down to 36,500. As long as the index trades above this level, the medium uptrend will remain in place. Next key support to note is in the band between 35,600 and 36,000. Those with a medium-term view can remain invested with a stop-loss at 36,400 and fresh long positions can be initiated on a strong rally above 39,000.

Nifty Bank (29,450.1)

The Nifty Bank index gained 2 per cent on Friday, helping it finish the week on a strong note. For the week, it surged 409 points or 1.4 per cent. The index took base at around 28,500 and reversed direction.

However, the Nifty Bank tests resistance at 29,500. A strong break above this level will reinforce the bullish momentum and push the index higher to 30,000.

A further rally will boost the up-move to 30,500 and 31,000 levels in the medium term. But a decline below the immediate support at 29,000 will drag the index down to 28,500 once again. A plunge below this base will mar the short-term uptrend and pull the index down to 28,000 and 27,500 in the short term. Traders with a short-term view can go long on a strong rally above 30,000 with a fixed stop-loss.

Global cues

The Dow Jones Industrial Average was choppy and has declined 178 points or 0.68 per cent to close at 25,764. The index now faces resistance at 26,000. A break above this barrier can take the index higher to 26,500. But to strengthen the short-term uptrend, it needs to move decisively beyond 26,500.

Next resistances are at 26,750 and 27,000. Conversely, an emphatic plunge below 25,500 can pull the index down to 25,200 and 25,000 levels.

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