Mixed Signals: Strong October Gains, Sideways Weekly Close
Indian markets witnessed a volatile week with strong early gains followed by a correction in the latter half, leaving the Nifty500 nearly flat with just a 0.1% weekly rise. Profit-taking at higher levels erased much of the early momentum after a solid multi-week rally. Still, October closed +4.29% up monthly, marking its best since March 2025. The broader trend remains cautiously constructive, with indices likely to test their rising moving averages in the coming week.
Key Indices Performance:
Nifty50: -0.28%
Sensex: -0.32%
Nifty500: +0.10%
Nifty Midcap150: +0.71%
Nifty Smallcap250: +0.55%
Nifty Midsmallcap400: +0.65%
Key Drivers This Week
Global Trade Optimism: Markets initially rallied on reports of potential US-China trade deal progress, coupled with optimism over India-US trade progress.
Measured Fed Response: The 25bps rate cut by Fed was well-anticipated. While lower US rates typically make emerging markets like India more attractive, Powell’s comments about future cuts being uncertain dampened investor sentiment.
Profit booking at record high levels led to a pause after a multi-week rally.
Technical Perspective
Nifty500 Trend: The Nifty500 advanced 0.10% during this week, extending its winning streak to five consecutive weeks despite profit-booking on Thursday & Friday capped gains.
The index established a fresh higher high this week and is consolidating near the upper boundary of its previous consolidation range.
The sideways consolidation pattern since June 2025 has evolved into a more bullish structure, with the index creating a series of higher highs and higher lows that suggests strengthening underlying momentum.
Any retracement toward the 20EMA could provide a healthy pullback within the consolidation zone, potentially acting as dynamic support before the next leg higher breaks the index out of its current range.
As mentioned in the previous newsletter, on weekly timeframe, the Nifty500 index seems to be forming the handle portion of a Cup-and-Handle pattern, with volatility tightening, which is a sign of pressure building up before a breakout. When this handle resolves, it could be explosive. This setup often precedes a strong breakout, and if that materializes, it could set the tone for a highly rewarding 2026.
The reason we track Nifty500 is because it represents over 90% of the free float market capitalization, making it a comprehensive barometer of market health.
Nifty500’s 10EMA crossed above its 20EMA on 7th October triggering a ‘Stay’ signal that suggests holding onto existing long positions.
Market Breadth: The % of stocks above all key short-term moving averages remained flat this week. It’s important to note that overbought or oversold signals are most relevant for swing traders, as they reflect short-term momentum shifts.
Accessing Market Breadth on Pro-Setups Dashboard is available for all readers. Click on the link below.
Positives for the next rally
Several positive factors are coming together to support the next market rally in India.
RBI projects India’s GDP growth at 6.5% for FY 2025-26, which means that our domestic economy is doing well.
Interest rate cuts will make it cheaper for businesses to borrow money.
Reduce GST rates and income taxes, would put more money in people’s pockets and boost spending.
A potential trade deal between the US and India could bring in foreign investment, giving the market the push it needs to move higher.
The Q3 (December quarter) earnings season should showcase strong performance in consumption-driven sectors.
Summary
Markets are showing signs of breaking out from their sideways movement, with good momentum building up. The overall outlook looks better as the basics are setting up for a stronger 2026. The Nifty500 is still working through its cup and handle pattern. In the coming week, keeping an eye on earnings quality will be important. The overall mood feels more positive than in recent weeks.