Nifty Snaps Eight-Week Losing Streak as Equities Rebound; 200-Week Average in Focus

Synopsis

Indian stocks rebounded from a 25-week losing streak in the wake of the week's October 9 closing to stop their longest weekly losing streak in 25 years. The Nifty 50 closed at 22,520.45, up 0.44 per cent, and the Sensex at 72,472.33. The recovery is fragile, according to analysts, as the Nifty continues to be below its 200 week moving average around 22,627 and foreign capital outflows, crude prices, global bond yields are concerns. Going forward, traders will be looking to see if the index can maintain the week-end above that line.

MUMBAI: The Nifty 50 index made the first steps in ending its eight-week losing streak in the week to October 9. The shares ended at 22,520.45 up 98.5 points, or 0.44 per cent, from their close on Friday, according to analyst Milan Vaishnav on StockCharts. The Sensex rose by 562.63 points or 0.78 per cent to 72,472.33 in a syndicated market wrap on TradingView. Previously, it says, it was the longest streak in 25 years.

The circumstances of the bounce

The week was won of gains late. The Sensex advanced 879.09 points (1.23 per cent) and the Nifty climbed 288.65 points (1.30 per cent) on Friday, according to the TradingView report. Buying in information technology, FMCG, automobile and financial stocks led the recovery.

As per Zerodha's weekly note, the previous week saw the Nifty closing at 22,421.95, which was approximately 3.1 per cent down. The total rainfall for the eight weeks in the fall was approximately 8.7 per cent below normal. This week, the index hit the 22,200-22,180 range, where it found support, according to Zerodha's latest note.

Why the 200-week average matters

At present, the Nifty has not been able to “reclaim” the 200-week moving average, which stands at 22,627, according to Mr Vaishnav, founder and technical analyst at EquityResearch.asia. If the close each week is above it, it would have to be more credible for the recovery to be considered, he said. He placed immediate resistance at 22,630 and 22,780, and support at 22,300 and 22,100.

As per the same analysis, India VIX, the market volatility measure, jumped 5.67 per cent to 15.28 in the week. The weekly RSI is at 32.56, which he interpreted as a swing from strength to weakness.

The case for and against

The positive side, however, in the TradingView wrap quotes one analyst that the late-week rally was fuelled by more positive company news and cheaper crude oil prices. Mr Vaishnav noted that there were positive divergences on the daily charts with further recovery indicated.

The positive take is on the other side: on the cautionary side, "persistent foreign fund outflows, high crude, high bond yields around the world and uncertainty about monetary policy remained bearish on sentiment. Zerodha's note indicated that it was too early to deduce a trend reversal.

The week ahead

Business Today's list of factors that will impact the outlook includes rupee, foreign institutional flows, corporate earnings and September CPI inflation data along with crude prices and US Treasury yields. The next hurdle that traders will be watching will be if the Nifty can maintain the weekly close above 22,627.

The information and opinions contained in this article are market-moving data or analyst opinions. It is NOT an investment recommendation.