Weekly Outlook of Nifty from Oct 29th - Nov 2nd

Last week it was mentioned that “The Chart patterns suggest corrective modes after touching strong resistance zones. Nifty fut forming a Doji shows a clear sign of indecision among the market players. Nifty for coming week still looks bearish. After touching the strong resistance zone, it is struggling hard to find the next direction. NIFTY Index is consolidating in the range of 5630-5730. The ability to hold above strong short term base at 5630-5580 does provide good comfort but there is no strong momentum to take out immediate resistance at 5740-5760.”

During the week Nifty Index traded exactly within the mentioned range of 5630-5730 in a bearish mode. Nifty nicely traded end-to-end of 5630-5730 range (low for the week at 5641 and high at 5722) before closing at 5664 without breaking the channel band (5630-5730) and not giving any confirmation for further direction.

Our markets continued to remain cautious amidst the corporate result season and ahead of second quarter review of the RBI credit policy. FIIs were in a profit booking mood last week and the index may see lower levels if they continue selling in the coming week. Retail investors are still not participating completely. The RBI will announce the second quarter review of the credit policy on 30th October which will possibly set the drift for November month.

However, there are no strong cues to drive the market into bearish mode at this stage as RBI is expected to shift to pro-growth/pro-investment monetary policy stance and positive political developments for smooth passage of reform bills in the Parliament.

The Sensex consolidated within a narrow 300 point rectangular range, from which a break out can occur in either direction. Any upward break out is likely to face resistance from the zone between 19132 and 19750. On the downside, the unfilled gap, the rising 50 day EMA should provide good supports.

The weekly closing chart of the Nifty suggests a sideways flow with a slightly downward bias. However, the index is trading above its 20 week and 50 week EMAs.

Weekly technical indicators are showing signs of weakening upward momentum. The MACD is positive and above its signal line, but moving sideways. The ROC is also positive, but has crossed below its 10 week MA. The RSI is on to the edge of its overbought zone. The Slow stochastic is inside its overbought zone, but sliding down.

Conclusion: Chart patterns of Sensex and Nifty are consolidating within narrow ranges from which a breakout can occur in either direction. The overall view for the coming week still remains same as nothing has changed. Index is still trading within immediate support and resistance level of 5630-5740. Hence preference would be to wait and watch for the confirmed signal on a technical chart. Technical chart indicates a sign of consolidation phase before a major price breakout. Keep an eye on 5630-5730 expect a sharp price movement once NIFTY index breaks its trading range. On the down side breakout, it will try to fill the gap near 5450 and any positive surprise from RBI in a form of rate cuts would take index right up to 5940.

Weekly Outlook of Nifty from Oct 22nd - Oct 26th

Last week it was mentioned ‘The possibility for the coming week still remains bearish as PCR (Put/Call Ratio) has now dropped below 1.0 this week. Consider 5630/5600 as a critical support level for NIFTY index and a break below can trigger a fall up to the gap of 5450’. During the week Nifty posted a low of 5633.9, and placed a high of 5722 closing the week at 5684 nevertheless the mentioned critical support of 5630 still continues to hold.

For the entire week Nifty traded in a very narrow range consolidating between 5630-5730 without showing any significant price movement. However the most significant point is that it survived above the mentioned estimated critical support zone of 5600/5630.

FIIs remained net buyers, but their buying eagerness has faded a bit and DIIs continued to be net sellers. The 20 week EMA has provided a good support and the index as expected corrected after hitting the strong resistance zone of 19132/19750. Expect support from 18524/18284.

The daily chart pattern of Nifty index is stuck in a narrow 100 points range. The 20 day EMA has not only provided good support to the index but has also continued to rise. The 50 day and 200 day EMAs are also rising, indicating the uptrend in the Nifty remains present. However any corrections would improve the technical health of Nifty chart.

Daily technical indicators are turning bearish. The MACD is positive, but falling below its signal line. The ROC is in negative territory, and below its 10 day MA. The RSI is still above its 50% level but is sliding down. The Slow stochastic still looks bullish.

The up move should resume in the near future.

Conclusion: In the earlier post of Oct 8^th I had suggested that the upper side is capped at 5800 in Nifty for October series.  The Chart patterns suggest corrective modes after touching strong resistance zones. Nifty fut forming a Doji shows a clear sign of indecision among the market players. Nifty for coming week still looks bearish. After touching the strong resistance zone, it is struggling hard to find the next direction. NIFTY Index is consolidating in the range of 5630-5730. The ability to hold above strong short term base at 5630-5580 does provide good comfort but there is no strong momentum to take out immediate resistance at 5740-5760. Western bourses are weak and uncertainty in domestic cues (with weak rupee) is keeping investor confidence low. The preference would be to remain aside till it breaks this range because prices will move very fast once this horizontal channel is broken. Traders can keep a close watch on (OI) at 5600 Put options. If the unwinding continues then it will surely break below 5600-5630 support zone and traders can take full advantage for the fall till 5581/5530/5450.

Weekly Outlook of Nifty from Oct 15th - Oct 19th

Last week it was mentioned that “Both Sensex and Nifty are likely to correct or consolidate before bulls could cross the Nov ‘10 top. One can use dips to enter, but maintain stop-losses. The derivative data suggests the upper side of the market for October series has been capped at 5800. This is a negative signal for the coming week. The Put/Call Ratio dropped to 1.13 suggesting that Bulls have slightly lost their control. So we can expect market entering into some corrective mode in the near term. Consider 5630/5600 as a critical support level for NIFTY index and a break below can trigger a fall up to the gap of 5450".

During the week NIFTY Index made a low of 5637 which was exactly 7 points above the support of 5630. It was a phase of profit-booking driving NIFTY down from below set near term objective at 5830 (high of 5815) to strong short term support at 5630 (low of 5637) before closing the week at 5676. This 200 point correction (as counter trend move) is seen as good post 1000 point rally from 4770 since first week of June. In fact NIFTY Index tried multiple attempts to breach the level of 5630 on Thursday’s trading session but finally managed to hold and close above this level for the week.

So far, the correction has received good support from the 20 day EMA. The inflation has moderated a bit, but remains high. The IIP number was better than expected, but worse on a YoY basis however this could not bring any cheer to the market and Index kept on falling but managed to close the week above the support channel at 5676.

The weekly closing chart of Nifty Index has turned down after hitting the strong resistance zone between 5750 and 5950. This was expected, and is good for the long-term technical chart. A drop towards the support channels will correct the overbought condition, and prepare the grounds for an attempt to cross the resistance zone.

Weekly technical indicators are weakening, but haven’t turned bearish yet. The MACD is positive and above its signal line. The ROC is also positive, but falling towards its 10 week MA. The RSI has slipped from its overbought zone. The Slow stochastic is still inside its overbought zone.

Both the 20 week and 50 week EMAs are moving up and the Nifty is trading well above them. There is no immediate threat to the bull market, and the dip towards the uptrend line may be used to enter.

FII flows which drove the market up from 5200 to 5800, post QE3 and domestic reforms are seen to be in wait-and-watch mode till current correction process is out of the way. It would need combination of off-shore and domestic investors to drive NIFTY above 5830 into set short term target at 6198/6322. The major trigger for this move will be on Parliamentary approval, rate cut from RBI and confirmation of rupee bullish trend into 50-51.

Conclusion: In the technical chart, Index has managed to hold above the support price channel but is now under profit booking pressure. The corrections may last a bit longer but will help the bulls to gather some strength to overcome the resistance zones. Select and choose stocks that declare improved Q2 results.

The possibility for the coming week still remains bearish as PCR (Put/Call Ratio) has now dropped below 1.0 this week. Consider 5630/5600 as a critical support level for NIFTY index and a break below can trigger a fall up to the gap of 5450.

For Investments: Let us now watch strong short term support zone at 5630-5580 and near term resistance at 5760-5830. The strategy is to build on to “longs” near 5630 and add at 5580 if seen for near term objective at 5800-5830. Beyond, RBI’s shift into growth supportive monetary stance and dilution in sovereign rating downgrade risk will trigger extended gains beyond 5830 into 5950/6177/6322.

Weekly Outlook of Nifty from Oct 8th - Oct 12th

Last week it was clearly mentioned; “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”. One more thing was been said repeatedly that “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”. During the week NIFTY index made another new high of 5815 but started dropping from there and the SENSEX placed a high at 19137 right at the resistance zone mentioned at 19132.

Friday morning market responded with gap up opening but came under profit booking pressure and day closed at 5747 with ‘Bearish Engulfing candlestick’ on technical chart signalling threat. A ‘flash crash’ in the Nifty that was being approved by NSE authorities as an ‘error’ made at a brokerage terminal. If an ‘error’ can cause the Nifty to drop by 900 points within seconds, then NSE authorities should take the blame for having ineffective software systems. The way high-value shares were picked up quickly at much lower prices smells of a well-executed scam.

The Sensex rose above its Feb ‘12 top forming a bullish pattern of higher bottoms and higher tops. The 20 week EMA crossed above the 50 week EMA, technically confirming a return to a bull market. The more immediate worry is the nearness of a strong resistance zone between 19132 and 19750 and the pain is SENSEX has placed the high at 19137 (which I have been mentioning in the past 2/3 posts). This resistance zone has to be crossed if the bulls want to regain control.

Weekly technical indicators are bullish, but looking overbought. The MACD is rising above its signal line in positive territory. The ROC is positive and moving above its rising 10 week MA. The RSI and Slow Stochastic are both inside their overbought zones, but touched lower tops while the index rose higher. A correction/consolidation may be around the corner.

Now, taking the ‘flash crash’ into consideration Nifty’s uptrend has ended as the index dropped below its Jul ‘12 and Aug ‘12 lows, and all three EMAs. Even the longer-term uptrend line connecting the Dec ‘11 and Jun ‘12 bottoms was breached on intra-day basis. However the yearly daily closing chart of the Nifty is obviously still in an uptrend.

Considering an index falling a huge amount within a fraction of time, whether due to an ‘error’ or a ‘scam’, it is better to remain cautious as this happened when the Nifty had briefly entered a strong resistance zone between 5740 and 5940 and the Sensex at 19132-19750 zones. The close just below the resistance zone on Friday may lead to some profit booking in the coming weeks.

Nifty touched a new high, but all four technical indicators are showing negative divergences by failing to touch new highs. However, all four indicators are still bullish, so any correction is unlikely to be steep. Support can be expected from 5630 and the 20 day EMA at 5600.

Conclusion: Chart patterns of Sensex and Nifty are in bull markets, but needs to cross above the strong resistance zones. Both Sensex and Nifty are likely to correct or consolidate before bulls could cross the Nov ‘10 top. One can use dips to enter, but maintain stop-losses. The derivative data suggests the upper side of the market for October series has been capped at 5800. This is a negative signal for the coming week. The Put/Call Ratio dropped to 1.13 suggesting that Bulls have slightly lost their control. So we can expect market entering into some corrective mode in the near term. Consider 5630/5600 as a critical support level for NIFTY index and a break below can trigger a fall up to the gap of 5450.