Weekly Outlook Of Nifty from Nov 5th - Nov 9th

Last week it was mentioned that “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.

During the week RBI announced a 25 bps (0.25%) cut in the CRR ratio but unchanged reverse repo rates disappointed the market players and the index dropped sharply below 5630 (a downside breakout) touching the next comfort zone of 5581 (mentioned in the post of 22^nd Oct) and placing a low at 5583 for the week. Nifty Spot closed at 5697.7 while Nifty fut. closed at 5739.55. Nevertheless Nifty managed to close above the falling trend line which comes around 5675.

The RBI announced CRR cut which would bring in more liquidity into the banking system. The index closed the week at its highest level in four weeks. So another attempt to test the resistance zone between 19132 and 19737 appears on the cards.

Last week Nifty Index gave a ‘false break down’ below 5630 trading range within which the Nifty had been trading for the past few weeks. It is considered to be ‘false breakdown’ because Nifty has climbed back inside the trading range, it also fell less than 1% below the lower edge of the trading range just to touch its comfort zone of 5581.

Interesting point is after receiving good support from the 50 day EMA, Nifty has moved above its 20 day EMA with a gap, by decent volumes which in fact open up the possibility of a break out above the upper edge of the rectangular trading range.

The MACD is still below its signal line in positive territory. The ROC is touching its 10 day MA just below the signal line. The RSI and the Slow Stochastic are climbing up to touch their 50% levels. Nifty is below its long-term resistance zone and may struggle a bit before moving higher.

Conclusion: Chart patterns of Sensex and Nifty gave ‘false’ break down below narrow trading ranges, before moving back inside their trading ranges. There are good possibilities of upward break outs. Nifty 5700 PUT added 797550 shares in OI and 5700 CALL decreased 884100 contracts from OI which indicates that 5700 can act as a good support for Nifty. FIIs bought index future worth 702.43 crores adding 7.9% fresh OI in current month indicating that fresh long positions have been added on Friday. The derivative data suggests that NIFTY index is forming a trading range for November series between 5600-5900. The highest Put option OI is at 5600 strike price and for Call option it is at 5900. Again further, the option writing on Friday was more on Put side than Call options which hint a positive momentum for NIFTY index in the coming week. The PCR is at 1.12 suggesting there is equal force from Put and Call side but Puts have slight edge over Call build-up which is again a positive hint. On Technical chart NIFTY index has still not managed to cross 5720 level. Nevertheless it has at least moved above the trend line and formed a “Doji” candlestick (indecision). So the conclusion is though the technical chart is on the border of giving confirmation for upside movement, the derivative indicators have already started giving confirmed positive signals with an upper target of 5900. On downside the support for the coming weeks remains at 5600 until any unwinding of Put option is noticed.