Weekly Outlook of Nifty from Oct 1st - Oct 5th

Last week it was mentioned that nifty would face some hurdles at 5740-5760 but momentum is strong for extension into 5900/5925. For the week, let us watch 5630-5925. Nifty managed to stay above 5630 placing a low of 5639. The good news is NIFTY has gone up by 500 points and has managed to close above the first barrier of 5630 so there are still some hopes for the further rise. During the entire week NIFTY tried to cross 5740 but retreated to its support near 5630 placing a low of 5639 for the week and then made yet another new weekly high of 5735.  

The 220 points gap in the daily chart of the Sensex was formed after the announcements by ECB and the US Fed about another round of QE3 and the Sensex still remains above the gap instead of filling it. The index is still reluctant below the 19132 resistance level. The zone between 19132 and 19750 is a long-term support/resistance zone. Also, the index is looking overbought as it is trading far above its 200 day EMA.

Technical indicators are bullish, but correcting overbought conditions. Expect a correction down to the top of the gap, or a sideways consolidation, before the bulls manages to push the Sensex above the resistance zone. If the gap remains unfilled, or gets partly filled, it will be a ‘measuring gap’ with an upward target of 20700 for the Sensex.

The bulls had taken support at 5638 forming a double bottom after consolidation and managed to close above 5700 first time after April 2011 but it still failed to close above 5740 placing a high at 5735 for the week. However the close above 2012 high of 5630 is very bullish into short/medium term. The index is facing strong resistance from the expected resistance zone between 5740 and 5760. The rising volumes indicate that the bulls may have sufficient power to overcome the resistance zone, but might be after a period of consolidation or correction.

Weekly technical indicators are looking bullish, but overbought. The MACD is rising above its signal line in positive territory. The ROC has crossed above its 10 week MA in positive zone. The RSI and the slow stochastic both are inside their overbought zones.

Conclusion: I would say that we are now very near to the upper target of the current rally and one needs to be very cautious. Index has sustained and closed above 5630 level so it cannot be denied that it may move further to the next target of 5900/5940.  On Friday, Nifty formed “Shooting Star” candlestick at the intermediate resistance line near 5740. Level 5630 is very critical support and should remain protected on closing basis for this rally to continue. The next important resistance is at 5740 (which I had mentioned in my last post). This week it made unsuccessful attempt to cross this barrier but in the coming week expect yet another strong attempt to cross this level. Note that above 5740, bulls will get ready to give a rally up to 5900. However, keep it in mind that 5940 level can act as a major turning point for the index. Looking at the charts it seems a bit tricky but current technical chart situation is that nifty is extending its wave pattern and it seems that market may touch 5940 level in October. Any close above 5740 will help nifty to target 5900/5940.