Index outlook: Volatility on the cards

The week ago was choppy. After an initial decline, the broader indices bounced back strongly on global cues. But the week ahead will be crucial as the indices are poised at a vital resistance zone and corporate results plus October derivatives expiry could induce volatility. With Muhurat trading scheduled next weekend, investors can expect a pre-Diwali rally.

Nifty 50 (8,693)

Following a negative start, the Nifty 50 index found support at around 8,500 and bounced back smartly in the previous week. It has climbed 109 points or 1.3 per cent to close above the 8,600-mark.

This week: The index tests crucial resistances now. At current levels, it tests the 21 as well as 50-day moving averages and key resistance level of 8,700. Moreover, the index has another key resistance close to 8,750, which is the floor of the gap that occurred in early September. A strong breakthrough of this cluster of resistance in the band between 8,700 and 8,750 can take the index northwards to 8,800 and 8,900 levels in the near term. However, inability to move past 8,750 can pull the index down to 8,600 and then to 8,500 in the coming week. Traders with a short-term perspective should trend with caution at the current juncture. Only a strong rally beyond 8,750 will be a cue to initiate long positions with a stop-loss at 8,680 levels.

On the downside, a decisive downward break below 8,500-mark will reinforce the short-term down-trend that has been in place since the early September peak of 8,968. Subsequent supports are placed at 8,400 and 8,300 levels.

Medium-term view: Since mid-July, the index has been testing significant support in the range between 8,500 and 8,550. A conclusive downward break-out of 8,500 will be threat to the index and drag it down to 8,300 and then to 8,150 — the 38.2 per cent Fibonacci retracement level of the prior up move. Sideways movement is possible if the index faces difficulty in surpassing the resistance at 8,900. Resistances beyond 8,900 are at 9,000, 9,100 and 9,300.

Bank Nifty (19,710.9)

Taking support at around 19,000, the Bank Nifty advanced 690 points or 3.6 per cent, outperforming the broader indices last week. Though the index has closed above its 21 and 50-day moving averages, it faces a vital resistance ahead at 19,800. Strong rally beyond this level can take the index northwards to 20,000. Further rally beyond 20,000 can target 20,250 and 20,500 in the short to medium term. Traders should tread with prudence and go long on a decisive rally beyond 20,000 with a fixed stop-loss. On the other hand, a strong fall below 19,400 will bring back bearish momentum and pull the index down to 19,000 levels once again in the near term. Next supports are at 18,675 and 18,500 levels.

Sensex (28,077.1)

The index bounced back strongly, recouping its previous week’s loss and closed marginally above the 28,000-mark.

This week: The Sensex has significant hurdles at 28,300 and 28,500. Conclusive breach of 28,500 is required to alter the short-term bearishness and take the index upwards to 28,770 and 29,000 levels. Key immediate supports are at 27,800 and 27,500. A slump below 27,800 can pull the index down to re-test the key support at 27,500.

Medium-term view: The medium-term trend is up for the index. As long as the index trades above the support band between 26,200 and 26,500, the uptrend will be intact. Strong decline below this base zone will be threat to the uptrend and drag the index down to 26,000. An emphatic break-out of 29,000 will reinforce the bullish momentum and accelerate the index higher to 30,000 levels in the medium-term horizon.

Global cues

The Dow Jones Industrial Average continues to be volatile in the narrow range between 18,000 and 18,400. It has been range-bound over the past one month. Strong break below 18,000 will strengthen the downtrend and pull the index down to 17,800 and then to 17,600 in the coming weeks. Conversely, a decisive upward breakthrough of 18,400 will pave way for an up move to 18,650 and then to 19,000 in the medium term. Japanese benchmark index Nikkei 225 advanced 328 points breaking through its immediate resistance at 17,000. It can extend its rally and encounter resistance at 17,500. But failure to sustain this bullish momentum will lead to a false breakout and the index can slump below 17,000 levels. Key supports are at 17,000 and 16,500. Significant resistance beyond 17,500 is at 18,000.

Crude oil price were range-bound between $49 and $52 per barrel last week as well. Strong rally beyond $52 can take it northwards to $54. Support below $49 are at $48 and $46.