Index Outlook. Indices on a reversal mode

Market sentiment was bearish as the equity market started the previous week on a negative note taking cues from the weak global markets. Then the rising Indo-Pak tension spooked markets and the indices ended the week on a sombre note. Going forward, auto sales numbers, the much awaited RBI policy review by the new governor, Urjit Patel, on October 4 and telecom spectrum auction are key events that could drive the bellwether indices — Nifty and Sensex.

Last week, the Nifty 50 index plunged 220 points or 2.5 per cent, decisively breaching its immediate support at 8,700. This support has now turned into a key resistance.

This week: Triggered by Indo-Pak tensions and September month derivatives expiry, the index tumbled 1.7 per cent on Thursday, conclusively breaking a key support at 8,700 levels. The index, however, found support at its next base level at 8,600 and is currently testing it. The daily relative strength index is on the brink of entering the bearish zone from the neutral region and the weekly relative strength index has entered the neutral region from the bullish zone implying weakness.

Moreover, the daily price rate of change indicator in the daily chart feature in the negative terrain signalling selling interest and the weekly indicator is likely to enter the negative zone. The index trades well below its 21 and 50-day moving averages. Immediate resistance at 8,700 could limit the upside for the index. Downward resumption from this hurdle can be a cue for traders with a short-term perspective to initiate fresh short positions with a stop-loss at 8,720 levels. A fall below 8,600 can drag the index down to 8,500 levels. Significant resistances beyond 8,700 are at 8,800 and 8,900 levels.

Medium-term trend: The uptrend which commenced from the February low is gradually loosing momentum. The index posts its first monthly loss since February and is down 2 per cent. Nevertheless, the uptrend can continue as the index trades above its significant support level at 8,000.

An emphatic downward breakthrough of 8,500 can pull the index down to 8,300 levels in the medium term. Further slump below 8,300 will be a cause for worry. On the upside, the index has a key psychological resistance at 9,000. Strong breakthrough can pave way for an up move 9,100 and 9,344 in the medium term. Investors can stay invested with a stop-loss at 8,000.

The Sensex plummeted 802 or 2.8 per cent underperforming Nifty 50 last week. It has closed below the immediate base level at 28,000.

This week: The index breached its 21 and 50-day moving averages last week, showing sings of weakness in the short-term trend. It currently trades above the immediate support level at 27,000. Conclusive slump below this level will strengthen the bearish momentum and can pull the index down to 27,500. A rally can encounter multiple short-term resistances poised close to each other at 28,000, 28,200 and 28,500 levels. Key hurdle beyond 28,500 is at 29,000 levels.

Medium term trend: The index has been in a medium-term uptrend since late February. Only a strong fall below 26,200 can change this medium-term uptrend. Significant resistances to note beyond 29,000 are at 29,130 and 30,104. Supports to watch are at 27,500 and 27,000.

The Nifty Bank index tumbled 616 points or 3 per cent in the previous week and has breached support at 19,500. It now trades above the immediate support at 19,000. Short-term outlook is bearish for the index. Traders with a short-term view can make use of rallies to initiate fresh short positions with a stop-loss at 19,600 levels.

Resumption of the near-term downtrend can take the index below its support at 19,000 and then 18,500 levels in the short term. On the other hand, a rally beyond the immediate resistance at 19,500 can take the index to 19,780 or even to 20,000 levels. Key resistances above 20,000 are at 20,250 and 20,500 levels. Subsequent support below 18,500 is at 18,300 levels.

The Dow Jones Industrial Average closed on a positive note at 18,308, amid volatility, gaining marginally last week. The index faces immediate resistance at 18,400. Strong rally beyond this level can take it upwards to 18,550 and 18,650 levels in the coming weeks. Having said that, a decisive downward breakthrough of the support at 18,000 can pull the index down to 17,800 and then to 17,500.

The West Texas Intermediate crude price extended its up move by advancing more than 8 per cent last week to close at $48.2 per barrel as OPEC agreed to reduce output for the first time in eight years in its recent meetings.

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