Index Outlook: Quiet Diwali on Dalal Street?

We have a truncated week ahead and most market participants would prefer a quiet market that gives them time to participate in the ongoing festivities.

Jobless rate declining to 5 per cent, a seven-year low, sent the dollar shooting up on Friday. This will impact the rupee in the early part of this week.

Asian markets are also likely to be nervous on Monday morning, as strong employment data increases the possibility of a Fed rate hike in December.

According to Bloomberg, odds of a December hike have increased to 68 per cent now.

The outcome of the Bihar election will also have an impact on the market opening this week.

It is however possible that the market has already discounted the negative fallout of the election since it has been sliding lower over the past couple of weeks.

With the stock market shut on Wednesday and Thursday, trading in the early part of the week is also likely to be lacklustre.

The Sensex and the Nifty are also drawing close to short-term supports at 25,900 and 7,850 respectively.

The ongoing slide could halt at these levels with the indices attempting to spend some time consolidating here.

The next bunch of quarterly earnings that will include real estate, infrastructure and metal companies is not likely to lend any cheer to the proceedings.

Consumer price index and industrial production numbers due this week will help us gauge what Raghuram Rajan will do next.

Nifty (7,954.3) The Nifty continued trudging lower and closed with 111 points loss. Yet another bearish candle in the weekly chart confirms the evening star pattern.

Momentum indicators in the daily chart have moved deeper in to the bearish zone.

The daily moving average convergence divergence moving below zero implies that there could be more pain in the offing in the near term.

Weekly oscillators are also turning quite bearish with lower tops and troughs.

The week ahead:  The Nifty closed slightly below the 50-day moving average on Friday.

The index has strong support at 7,846. Even if there is a decline in the early part of the week, investors can watch out for a reversal from this level.

The short-term trend will however turn negative on a decline below this level. Next targets are 7,691 and 7,539. Rallies next week will face resistance at 8,084 and 8,181.

Inability to move above the first resistance will be the cue for short-term traders to initiate fresh shorts with stop at 8,200.

Medium-term trend:  The movement last week suggests that the medium-term downtrend from the 9,119 peak could resume.

This wave has the targets of 7,363 and 6,762. The zone between 7,300 and 7,500 is however likely to halt any sharp slide in the index.

Move below 7,846 will be the first indication that the medium-term down-trend is deteriorating.

The index needs to move above 8,500 to make the medium-term trend positive.

Subsequent targets stay at 8,654, 8,845 and 9,119.

Sensex (26,265.2) The Sensex slid 391 points lower to close on a weak note.

The week ahead:  The short-term trend continues to be down and the Sensex closed near the intra-week low.

The Sensex has immediate support at 25,900 and investors should watch out for a bounce from this level.

Short-term rallies can take the index higher to 26,744 and 27,076. Inability to move beyond the first resistance will be the cue for traders to initiate shorts. Short-term trend will turn positive only on a close above the second resistance.

Targets on a close below 25,900 are 25,287 and 24,851.

Bank Nifty (17,086.5) The CNX Bank index has the immediate support at 16,900 and then at 16,639. Watch out for a bounce from 16,639.

Fresh short positions are advised only on a move below this level. Next targets are 16,192 and 15,762.

Rallies will face resistances at 17,344 and 17,623. You can initiate fresh shorts if the index reverses lower from either of these levels.

Global cues Global benchmarks moved slightly higher last week. The CBOE volatility index stayed in a band between 13 and 16, implying that investors in the US are feeling quite sanguine.

European indices managed to gain over the week, helping the DJ Euro STOXX 50 close almost 1.5 per cent higher. The Dow managed to close almost 246 per cent higher despite some volatile trading.

The index seems set to move on to its life-time high of 18,351 recorded in May. Key support for the index is at 17,050. Short-term view will turn negative only on a close below this level.

The recovery in the Shanghai Composite Index is also quite interesting. It managed to close the gap formed this August and is powering ahead.

Next target for the index is 3,752. Move above this level will signal a reversal in the medium-term trend.

COMMENT NOW