Dalal Street Week Ahead: Oversold Nifty may rebound as volatility stays high

After a negative week, the Nifty futures may see a rebound as volatility remains high. The Nifty experienced a wide 862.95-point trading range before regaining some ground. The India VIX increased by 18.91% during the week, reaching 14.46. The week concluded with the index falling by 718.55 points, or 3.11%. The technical structure has weakened, primarily due to the Nifty breaching its 200-week moving average for the first time since March 2020. This makes the 22,600 level especially crucial in the coming days.

As trading resumes after a one-day holiday, the week will be impacted by a key domestic macro event – the RBI Monetary Policy Committee meeting from October 5–7, with the policy decision scheduled for October 7. This may result in cautious behavior among interest-rate-sensitive portions of the market and heightened intraday volatility around the outcome. Resistance is anticipated at 22,600 and 22,800, while support levels are at 22,200 and 22,000.

The weekly Relative Strength Index (RSI) is at 30.86, just above the oversold threshold, with no divergence against the price. The weekly Moving Average Convergence Divergence (MACD) remains bearish and below its signal line. Analyzing the technical references, the Nifty is testing the lower trendline of its broad range while simultaneously dropping below the 200-week MA.

This convergence of long-term technical indicators makes the 22,200–22,600 range a critical zone for the coming week. A swift recovery and persistent move above the 200-week MA could alleviate some technical damage; persistent acceptance below it would reinforce the risk of a deeper corrective move.

The coming week calls for a careful and selective approach. The near-oversold technical setup makes aggressive new shorts vulnerable to a sharp counter-trend rebound. However, the breach of the 200-week MA suggests that treating every recovery as the start of a durable reversal is not advisable. Given the RBI policy decision on October 7 and the already fragile technical setup, volatility may remain elevated.

The recommended strategy for the week is to remain stock-specific, limit leverage, and be cautious with risk while observing the Nifty's behavior in relation to its 200-week MA to determine if the expected technical rebound can evolve into a more significant recovery.