The key benchmark indices — the Sensex and the Nifty 50 — moved southwards last week, tracking the global markets that seemed worried about possible constraints to further economic stimulus.
Also, concerns about the possibility of pandemic-related lockdowns returning in some countries added to the jitters.
In the truncated week ahead, the domestic equity market will focus on the RBI’s monetary policy committee (MPC) meeting and the September month auto sales numbers.
On the global front, the first presidential debate pertaining to the US elections could be a market focus. Also, the US jobs report releasing in the weekend could keep the markets choppy.
Hence, investors should tread with caution.
Nifty 50 (11,050.2)
Despite gaining 2.3 per cent, or 224 points, on Friday, the Nifty 50 index closed the past week in deep negative, plummeting 3.9 per cent, or 454 points. After taking support at around 10,800, just above the 200-day moving average, the index managed to close above the key level of 11,000.
But it faces key resistances ahead at 11,200 and 11,300 levels.
Week ahead: The Nifty 50 index commenced last week on a bearish note, breached the 21- and 50-day moving averages (DMAs), and continued to trade below them. Thereafter, key supports at 11,300 and 11,000 levels were breached before the index found a base at around 10,800.
Although the index recouped some of the weekly loss and managed to close above the 11,000 mark, it faces crucial hurdles ahead at 11,300 where the 50-DMA is poised.
A strong break above this hurdle is needed to take the index higher to 11,400 initially and then to 11,580.
The subsequent resistance is at 11,630. A clear up-move above this level can take the index higher to test the recent high of 11,794 in the coming weeks.
On the downside, the key support at 10,800 and the 200-day moving average poised around this level had cushioned the index recently. That said, a retest of this level can’t be ruled out as long as the index trades below 11,300 levels. A decisive plunge below 10,800 will strengthen the downtrend that had begun from the late August high of 11,794, and drag the index lower to 10,600 and then to 10,500 levels over the short term.
Medium term: With the recent sharp fall, the medium-term uptrend that has been in place since the March low of 7,511 appears to be weakening slightly. However, the uptrend will remain in place as long as it trades above the crucial long-term support level of 10,000.
The weekly relative strength index (RSI) has entered the neutral region from the bullish zone and charts downwards.
The weekly price rate of change indicator is displaying negative divergence and also charts downwards, implying bearishness. The index now tests a key support at 11,000.
An emphatic weekly close below this base can pull the index down to the subsequent medium-term support at 10,600 and then to 10,200 levels. A decisive fall below the crucial base level of 10,000 can drag it lower to 9,800 and then to 9,600 in the medium term.
On the other hand, a strong break above the key resistance level of 11,800 is required to bring back bullish momentum and push the index northwards to 12,000. A strong rally above this hurdle will strengthen the uptrend and pave the way for an up-move to a lifetime high of 12,430 over the medium term.
Sensex (37,388.6)
Last week, the Sensex tumbled 1,457 points, or 3.75 per cent, breaching a key support at 38,000. The index took support at 36,500 and recouped, to finish the week above 37,000 levels.
Currently, the index faces a key resistance ahead in the band between 37,900 and 38,000. A conclusive breakthrough of this barrier will bring back bullish momentum and push the index northwards to 38,500 and then to 39,000 over the short term.
We reaffirm that a further break above 39,000 is needed to reinforce the medium-term uptrend and take the index northwards to 39,500 and then to 40,000 over the medium term. An emphatic move above the psychological resistance level of 40,000 will take the Sensex to the subsequent resistance levels of 40,700 and 41,000.
Conversely, a strong break below the key support of 37,000 can bring back selling interest and drag the index lower to 36,500 once again.
The index has a key, short-term, trend-deciding level in the band between 36,500 and 36,600.
A decisive fall below this zone can mar the short-term uptrend and drag the index down to 36,000 in the ensuing weeks.
Investors with a long-term perspective can remain invested with a stop-loss at 32,900.
Nifty Bank (20,982.3)
The Nifty Bank index extended the down-move by plunging 1,048 points, or 4.7 per cent, in the past week.
This fall has reinforced the short-term downtrend that had started from late August.
Last week, the index breached a key support at 22,000. Although the index slipped below the next key support level of 21,000, it bounced back, gaining 2.5 per cent on Friday, to end almost near this level. The index continues to tests this base.
Failure to move beyond the immediate resistance level of 21,500 can keep the index moving sideways with a negative bias. The next resistances above 21,500 are at 22,000 and 22,400.
The indicators and the oscillators on the daily chart are charting downwards, indicating selling pressure.
Traders with a short-term view can initiate fresh short positions with a fixed stop-loss if the index fails to move above 21,500 levels.
On the downside, if the index declines below 20,700, it can decline to 20,400 and then to 20,000 in the short term.
As long as the index trades below the significant medium-term resistance at 23,000, the downward pressure will be in place.
A strong break above this level can push the index northwards to 23,500 and then to 24,000 over the medium term.
Global cues
The Dow Jones Industrial average slipped 483 points, or 1.75 per cent, last week ago to close at 27,173.9. It breached a key support at 27,500 and now tests the next support at 27,000. A decisive fall below this base can pull the index lower to the subsequent support level of 26,600.
A strong break above the key hurdles at 27,500 and 28,000 is needed to bring back bullish momentum. In that case, it can trend upwards to 28,430 and to 28,700 in the short term.