Index outlook: Choppy trading on the cards

Trading will get volatile next week as indices approach their previous peaks and traders holding derivative positions roll it over. It is likely to be a close match between the bulls and the bears as they battle around the 27,000 peak of the Sensex.

With the FOMC meeting out of the way, investors will now start wringing their hands over the RBI’s monetary policy meeting scheduled for early October.

The onset of the festive season and the holidays could help traders take some money off the table and go on a well-earned break.

The good news is that the trend on the charts of both the Sensex and the Nifty stays gung-ho for the medium- as well short-term. The need for caution stems from the fact that investors are running out of reasons to push stock prices higher. That said, it is a bad idea to take a contrary position in a bull market before a downward reversal is confirmed.

The clichéd expression “a roller-coaster ride” aptly describes the movement of the Sensex and the Nifty last week. Stocks were nervous in the initial part of the week, ahead of the US Federal Reserve meeting. There was anxiety that the Fed might drop hints about a hike in interest rates sooner than the summer of 2015.

With the Fed assuaging investors — by saying that it will watch economic indicators that would determine when the rates would be hiked — the rally in markets resumed from Thursday.

The Indo-Sino deals also helped to revive sentiments at home.

Open interest in the derivative segment has reached ₹217,000 crore. Put call ratio almost equal to 1 implies that there will be pressure on both sides in the coming week as traders roll over their positions.

Derivative as well as cash market volumes soared as indices began moving higher again.

Indicators in the daily chart perked up towards the weekend. But the doji pattern in the daily chart does not bode well for the opening of the market on Monday morning.

The loss of momentum in the weekly charts is a greater cause for concern.

Sensex (27,090.4) The Sensex hit the intra-week low of 26,511 before reversing higher in the second part of the week.

The week ahead: The Sensex faces immediate hurdle at the previous lifetime high at 27,350. Reversal below this level will result in the index moving lower to 26,815 or 26,531. Short-term view will turn negative only on a close below 26,500. Next critical support is at 26,000, where the 50-day moving average is also placed.

Break above 27,350 will give the next target of 27,822.

Medium-term trend: Despite the gyrations witnessed last week, the Sensex managed to close the week above 27,000.

Immediate support that medium-term investors need to watch is 26,000.

But the medium-term view will turn negative only on a close below 24,500.

We reiterate that there is a significant medium-term hurdle for the Sensex at 27,400. But a sharp move beyond this level will take the index to 28,400.

Nifty (8,121.4) The Nifty too hit the intra-week low of 7,925 before reversing higher.

The week ahead: That the index has formed a doji close to its previous high on Friday implies that investors are getting jittery. There could be weakness in the early part of the week that can drag the index lower to 8,021 or 7,937.

Short-term traders can use declines to buy with stop loss at 7,900.

Decline below this level will take the index to 7,836 (50-day simple moving average) and then to 7,787.

Short-term trend will reverse lower only on a strong close below 7,800.

Conversely, if the index manages to move beyond 8,180 in the early part of the week, next target will be at 8,327.

Medium-term trend: The medium-term trend in the Nifty stays positive. The reversal from 7,900 level is a positive.

Even if the index reversers lower in the early part of the week, sideways movement between 7,500 and 8,200 will mean that the index is in a consolidation phase prior to a breakout. Next medium-term target for the index is 8,526.

The medium-term view will stay positive as long as the index trades above 7,000.

Global cues There was plenty of action on the global stage to keep investors riveted. Besides the FOMC meeting, the Scottish memorandum and the blockbuster Alibaba-listing occupied a lot of mind-space. Most global indices closed on a flat note after a volatile week.

It was a wonderful week for the US markets with the Dow surging beyond the short-term ceiling of 17,150 to hit the intra-week peak of 17,374.

Next medium-term target for the index is 17,876. The CBOE volatility index declined to 12 implying complacency among investors.

Most Asian indices closed with gains last week. The Nikkei is hovering around its December peak of 16,320. Breakout next week will mean that the index can head towards 18,000.

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