Index Outlook: Sensex, Nifty 50 are ready for fireworks

Last year, just one week before Diwali, Nifty showed signs of a bearish turnaround. This year it is the exact opposite. A strong weekly close of the Sensex and Nifty, the strong rebound of the Dow Jones Industrial Average from a crucial long-term support and the Nifty Bank index closing decidedly above 40,000 are all sending strong positive signals. Both the Sensex and Nifty were up more than 2 percent last week and the Dow Jones is up more than 4 percent. In a sense, the stock markets are preparing for some fireworks in the form of a rally.

Keep in mind that the next week is an abbreviated week with only three trading days. The Indian markets are closed on Mondays and Wednesdays for Diwali. The aforementioned fireworks rally will therefore take place gradually in the coming weeks.

With the exception of BSE metals (-0.99%) and BSE consumer durables (-0.16%), other sector indices closed green last week. The BSE Bankex outperformed with an increase of 4.18 percent.

Handy 50 (17.576.30)

Handy rose breaks above 17,400, testing 17,600 last week. The index peaked at 17,670.15 on Friday and then closed at 17,576.30, up 2.27 percent for the week.

Next week: The outlook is bullish. Strong support for the Nifty is 17,440. Below that, 17,200-17,150 and the 21-week moving average (MA) at 16,928 are the key points of support. Immediate resistance is at 17,600, which has held up well for the past week.

Chart source: MetaStock

Chart source: MetaStock

There is a good chance for the Nifty to stay above 17,440 this week and break above 17,600 this week. Such a break could bring the Nifty to 18,000-18,100 this week itself or next week.

The near-term outlook for Nifty will only turn negative if it falls below 17,440. In that case, Nifty could drop to 17,200-17,150.

Medium-term outlook: the bigger picture remains optimistic. Strong supports are at 16,600 and then at 16,291 – the 100-week MA. The medium-term outlook will only turn bearish if the Nifty moves below the 100-week MA support.

Crucial resistance is 18,100. On the charts, there are strong signs that the Nifty will see a breakout of over 18,100 in the coming weeks. Such a break will bring the Nifty to 18,700 and 19,400 initially.

From a long-term perspective, we expect Nifty to test 20,500 in the coming months. From the charts, we see that this could be a good time to enter the markets for long-term investors.

Sensex (59,307.15)

The break above 58,530 and the rise to 59,500 went as expected. Sensex hit a high of 59,590.93 on Friday before closing the week at 59,307.15, up 2.39 percent.

Next week: The outlook is bullish. Immediate support is at 58,735. Below that, 57,500 and 56,840 are the key short-term supports. We expect the Sensex to remain above 58,735 in the near term and rise to 60,400-60,500 in the near term.

Chart source: MetaStock

Chart source: MetaStock

If the Sensex falls below 58,735, it could drop to 58,000-57,900. But that’s less likely.

Medium-term outlook: The medium-term bullish case is strengthening. As mentioned last week, 60,500 is a crucial resistance. We see great opportunities for the Sensex to rise above 60,500 and climb to 63,000 and even higher in the coming months.

The 100 week moving average (MA) at 54,688 is a crucial medium term support for the Sensex. The bullish outlook will only be negated if the index falls resolutely below this support. In that case, Sensex could be pressured to see 50,000 on the downside. But such a sharp drop seems unlikely, as the charts now show. For this drop to take place, Sensex needs to stay below 60,500 and fall below 56,840 to signal a first sign of weakness.

Short-term goals

42,000-42,500 on Nifty Bank

Handy Bench (40.784.05)

As expected, the Nifty Bank index held well above 39,000 and soared above 40,000 last week. This gives the index a solid foundation. Nifty Bank made a high of 41,032.25 on Friday and has climbed from there to close at 40,784.05. The index is up 3.76 percent this week.

Chart source: MetaStock

Chart source: MetaStock

The outlook is bullish. Immediate support is 40,300. Among those 40,000 will be psychological support. We expect the Nifty Bank index to remain well above 40,000 in the coming days. A rally to 42,000 and 42,500 is at stake for the future.

Global clues

The Dow Jones Industrial Average (31,082.56) rose sharply on Friday. The index, up 4.88 percent, ended the week strongly. On the graphs there are good first signs of a bottom formation. First, the recent has happened from around a very crucial long-term support level of 28,500. Second, last week’s gain came after three weeks of sideways consolidation. In a sense, this indicates a basic formation. So overall, the outlook for the Dow Jones going forward is optimistic.

Immediate support is 30,650. Below that, 30,000-29,800 is the next strong support zone. Resistance is in the 31,400-31,500 region. There is a good chance for the Dow to break above this resistance of 31,400-31,500, maybe not right away this week, but moving forward eventually. Such a break will pave the way for a rally in the Dow to 32,500 and 32,800.

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Published on October 22, 2022

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