Market technicals: Traders should brace for volatility on Dalal Street

It was a volatile week for the markets with the S&P BSE Sensex and the Nifty50 indices losing 882 points and 275 points, respectively during the week. Global cues, Reserve Bank of India’s (RBI’s) status quo on key rates and the outcome of the state polls (due this week) were some of the reasons that led to sharp swings.

Meanwhile, both the indices on charts suggest a modest upside even during the uncertain environment. Currently, the S&P BSE Sensex and the Nifty50 have seen weakness at the 100-day moving average (DMA) as per daily chart patterns located at 36,340 and 10,960 levels. The continuous gap-down during the last week breached the support of 200-DMA, which indicates weakness. The 50-DMA stands at 35,130 levels for the S&P BSE Sensex and at 10,570 levels for the Nifty50 index.

The moving average (MA) is a simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period of time, like 10 days, 20 minutes, 30 weeks or any time period the trader chooses.

As per the technical chart patterns, the recent low of 35,266 (S&P BSE Sensex) and 10,588 (Nifty50) are strong support levels. The Oscillator Relative Strength Index (RSI) has turned above the 50 level.  The trend following indicator MACD is in positive crossover above its zero line.

Sensex DMA

For this week, Monday’s closing level will be a decider. A positive close would mean continuation of Friday's reversal, adding more strength to the technical indicators. A negative close, on the other hand, could see the indices retest the support of 50-DMA. The coming sessions would be highly volatile, especially when we have a big event like the state election outcome coming up. Brace for volatility!