After a bright start, the benchmark indices — the Sensex and the Nifty 50 — began to move sideways in the past week.
Both the indices are slightly losing the bullish momentum as they continue to test crucial long-term resistances. The ongoing first-quarter earnings announcement can provide some direction to investors.
Nifty 50 (10,768)
Last week, the Nifty 50 extended its rally by surpassing another key resistance at 10,600.
The index jumped160 points, or 1.5 per cent. After an initial surge, it continued to test the next vital resistance at 10,830. The short-term trend is up.
The week ahead: With minor pauses or corrections at key resistances such as 10,200 and 10,500, the index managed to exceed them decisively. Likewise, the index is currently pausing at around 10,830.
Moreover, the 200-day moving average is poised at 10,884.
The daily relative strength index (RSI) is displaying a minor negative divergence and the weekly price rate of change indicator is also showing a negative divergence, implying a possibility of near-term trend-reversal or a correction.
Hence, investors should tread with caution as long as the index tests the vital resistance.
Moreover, it has a significant long-term resistance ahead at 11,000. Inability to move beyond this barrier can keep the index moving sideways in the band between 10,500 and 11,000 for some time.
On the downside, a plunge below the immediate support level of 10,600 can pull it lower to 10,500. An emphatic decline below this support can drag the index lower to 10,200 and then to 10,000 over the short term.
We restate that a strong decline below the second support can pull the index southwards to 9,800. A further slump below 9,800 can be a threat to the short-term uptrend, and drag the index down to 9,600 and then to 9,400 levels.
The subsequent support at 9,000 levels is the key base to note.
As long as the index trades above 8,800 levels, the medium-term uptrend will remain intact. But a decline under this base will witness selling interest and pull the index lower to the next support level of 8,400 and 8,200 levels.
Medium term: The index has been on a medium-term uptrend since late March this year.
While trending up, it had decisively breached key hurdles at 10,200 and 10,600. But, it now tests a resistance at 10,830. Thereafter, the crucial resistance is placed at 11,000. A decisive break above this hurdle can pave the way for a rally to 11,400 and then to 11,600 levels over the medium term. On the downside, a decisive plunge below the key support level of 8,800 could alter the uptrend and drag the index lower to 8,400 or 8,000 levels.
The Sensex continued to trend upwards, advancing 572 points, or 1.6 per cent, albeit with minor volatility, in the previous week.
It currently tests a key long-term resistance at 36,500.
A minor negative divergence is visible in the daily RSI, implying a likely minor trend-reversal; the short-term uptrend is losing steam.
A decisive break above 36,500 will negate the reversal and take the index northwards to 37,000 and then to 37,500 over the medium term. But failure to make a decisive break above the current hurdle can witness a near-term correction. The index has the possibility of retreating to the immediate support level of 36,000 and then to 35,500.
If the correction extends, the index can take supports at 34,500 and 34,000.
We restate that only a strong decline below 34,500 can bring back selling pressure and drag the index to 34,000. A slump below the medium-term base level of 34,000 can make the index trend downwards to 33,000 and then to 32,500 levels over the short to medium term.
The short-term uptrend will remain intact as the index trades above 32,000. The medium-uptrend that has been up since late March this year will remain intact until the index stays above 30,000. The key supports, thereafter, are placed at 29,500 and 29,000. Investors with a long-term perspective can stay invested with a stop-loss at 29,900.
Nifty Bank (22,398.4)
The Nifty Bank managed to move out of the crucial resistance in the band between 21,500 and 22,000, which was also the upper boundary of the sideways consolidation phase during the initial part of the previous week.
But the index fell 2.2 per cent on Friday, giving away some of the intra-week gains, to finish the week with a gain of 546 points, or 2.5 per cent.
The index encountered a key resistance at 23,000.
A conclusive break above this hurdle is needed to reinforce the bullish momentum and push the index northwards to 23,500 and then to 24,000 over the medium term.
The ongoing correction could find support at 22,000 or at 21,500. That said, if the index plummets below these supports, it can extend the corrective decline to 21,000 and then to 20,000 over the short term.
Traders with a short-term perspective should remain caution.
Consider taking fresh long positions on a strong rally above 23,000 levels with a fixed stop-loss. A further decline below 20,000 can pull the Nifty Bank lower to 19,500; the next crucial supports are placed at 18,000 and 17,000 levels.
The Dow Jones Industrial Average climbed 248 points, or about 1 per cent, to finish at 26,075 levels. It was choppy and formed a spinning top candlestick pattern in the weekly chart, indicating indecisiveness.
The index continues to test resistance at 26,000. A strong break above this hurdle can push the index higher to 26,500 and then to 27,000 in the ensuing week.
However, a fall below the immediate support level of 25,500 can drag the index lower to 25,000. The subsequent supports are at 24,500 and 24,000.