The past month the market was full of sound and fury, signifying nothing. We had global central bankers tightening their purse strings and upsetting markets, India gave a fitting reply to the Uri attack and Urjit Patel delivered a 25 basis points rate cut in his first policy meeting.

But despite heavy news flow, the Nifty is just 1.2 per cent lower since the first week of September. The index’s all-time high of 9,119 is also well within reach; only 4.8 per cent away. In other words, the frontline indices — the Sensex and the Nifty — have spent the past month in a sideways range. This is a result of global headwinds thwarting rallies while demand from both domestic and foreign investors is providing support.

Domestic cues remain benign. While renewal of geo-political tension can cause a temporary setback, it is unlikely to have a lasting impact on the ongoing medium-term uptrend. South-west monsoon has been good with rains at 97 per cent of the Long Period Average. The RBI has given a 25 basis points cut in its policy rate, doing its bit to help GVA growth to chug along at the 7.6 per cent rate. The Centre is making brisk progress in implementation of the GST.

Factors such as slackening private investments, stressed assets of the banking sector and falling gross savings remain a worry but there are plenty of positives that balance these negatives. Valuations at current levels, however, are factoring in all the positives and the second quarter earnings of companies will therefore be of great interest.

But trouble is brewing overseas. There are too many global events lined up over the next few months that can cause foreign fund outflow and derail markets. The next rate hike by the Fed is expected to be accompanied by a global sell-off caused by dollar carry trade unwinding. FPI flows are already turning extremely sensitive to news regarding Fed rate hike. Equity inflows into the market have been decent so far this year with YTD flows at $7.9 billion. But foreign investors have begun pulling money out of debt with net outflows this year at $130 million.

The upcoming US Presidential election in November, unveiling of the Brexit timeline, central banks, including the ECB and the BOJ unwilling to pump money indefinitely, are other global concerns weighing on markets.

Volatility can therefore be expected in the short term and the Nifty can once again retreat to 8,500 or thereabouts. But if the index manages to hold above this level, it will be positive from a medium to long-term perspective.

Nifty 50 (8,697.6) It was a choppy week for the Nifty. The slide towards the later half of the week erased early gains and made the index close 1 per cent higher.

This week: Festive cheer is expected to pervade markets in the truncated week ahead, keeping volumes low and action subdued.

The Nifty has managed to close at the 50-DMA at 8,697. Short-term support for the index is at 8,558 and 8,500. Short-term traders can buy in declines as long as the index trades above 8,500. Negative divergence and weakness in daily oscillators indicates that the index could be under pressure in the short term.

This view will be negated only if the index manages to close above 8,800. Next target for the index is at 8,968.

Medium-term trend: The medium-term trend continues to be positive. The sub-division of three parts of the down-move from September 7 peak implies that we could be entering a phase of prolonged sideways move that can last for a month or more. Monthly oscillators are indicating the beginning of a fresh leg of a long-term uptrend. This can mean that indices can break higher after a period of consolidation.

The guide-posts for the next month can be as below:

a) The likely trading range for the next month is between 8,500 and 9,000. This move has bullish connotation and will imply that a strong upward break will follow.

b) Strong close below 8,500 will mean that the entire move from the February low is being corrected. Decline to 8,150 is then possible. Medium-term outlook for the Nifty stays positive as long as the index trades above 8,150 and investors can look at decline to this level as a buying opportunity.

c) Third scenario is a break above 9,000 — that can happen if Diwali sets off a blitzkrieg in the market. Upward target in that scenario could be 9,100 and 9,344.

Sensex (28,061.1) The Sensex witnessed another volatile week after which it closed with mild 195 points gain.

This week: The extreme short-term trend is negative as the index is facing resistance at every rally.

The index has also closed below its 50 DMA and appears headed towards the support at 27,700. If this level is breached, the index can decline to 27,350. On the other hand, close above 28,551 can make the short-term outlook positive and take the index towards the next target at 29,062.

Medium term trend: We stay with a positive medium-term outlook for the Sensex. Monthly MACD and monthly price rate of change oscillators giving a buy signal mean that after the ongoing correction, the index can launch next leg of the rally that takes it above 30,000 again. A decisive fall below 26,200 is needed to change this view. Significant resistances beyond 29,000 are at 29,130 and 30,104.

Global cues Most global equity indices are in a medium term up-trend. The CBOE volatility index is at 13, implying that investors in the US are bullish. Among the European indices, while the CAC and the DAX have been subdued, the FTSE 100 has been soaring, thanks to the crash in the pound sterling.

The Dow hit a new life-time high at 18,668 and has been in a mild decline since then. But the rally that began from the February lows will be under threat only if the index manages to move below 17,500.

A decline to 17,000 and 17,500 will be construed a corrective pull-back in the uptrend. The S&P 500 has been stuck in a sideways range between 2,100 and 2,200 since mid-September.

Some Asian indices such as Jakarta Composite Index and Taiwan Weighted Index are in strong uptrend while others such as Philippines PSE composite are in a corrective pull-back, similar to the Indian market.

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