All eyes on 26,000: Nifty’s breakout zone could decide the market’s next leg

Nifty outlook for monthly expiry week

The Nifty index extended its winning streak for the fifth straight session on October 21, sustaining a firm bullish tone ahead of the monthly expiry. The index closed the Muhurat trading session at 25,868.60 with moderate gains. It continued to demonstrate impressive resilience and robust follow-through buying, with every minor dip being swiftly absorbed by participants. Trading well above its breakout neckline, the index has reaffirmed its dominant uptrend and solidified its bullish chart structure.

Technical Overview

From a broader technical standpoint, the index remains entrenched in a well-established higher-high, higher-low formation, underscoring persistent bullish control. The recent breakout above the 25,650 level has created a strong foundation, transforming former resistance zones into reliable support. The 25,650–25,700 zone now acts as a critical “buy-on-dips” region, reinforced by multiple technical confluences, including the breakout neckline and prior swing lows.

While the underlying momentum remains strong, the index appears slightly overextended on shorter timeframes, indicating early signs of momentum fatigue. A brief consolidation or shallow retracement cannot be ruled out, which may provide fresh entry opportunities for traders. Despite this, momentum indicators continue to favour the bulls — the RSI (14) remains elevated above 70, reflecting underlying strength and sustained buying appetite.

On the higher side, the 25,900–26,000 band stands as a pivotal resistance zone, coinciding with a prior supply region and substantial options concentration. A decisive breakout above 26,000 could ignite the next leg of the rally, potentially propelling the index towards 26,250–26,300 in the near term. Conversely, any dip toward 25,600–25,700 is likely to attract renewed accumulation, thereby keeping the overall market tone constructive.

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Dhupesh Dhameja

Derivatives Analyst|Samco Securities

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Derivatives Snapshot

The derivatives setup portrays a mood of measured optimism among traders as the market heads into the monthly expiry. Open interest data indicates a balanced mix of long and short build-ups, suggesting expectations of a range-bound yet upward-biased movement in the short term.

Substantial Call open interest (OI) of 1.50 lakh contracts at the 26,000 strike highlights a significant resistance barrier, while notable Put OI of 1.28 lakh contracts at the 25,500 strike provides firm downside support. This configuration implies that the index may continue to oscillate within the 25,500–26,000 range before a clear directional breakout emerges.

The Put-Call Ratio (PCR) eased to 0.89 from 1.03, indicating cautious sentiment and the likelihood of minor profit-booking after recent gains. Nevertheless, strong Put additions near 25,500, coupled with steady Call unwinding at higher levels, reflect traders’ confidence in the ongoing uptrend. Dips continue to appear more attractive for accumulation than initiating fresh long positions at elevated levels.

Market Outlook for Expiry Week

As Nifty enters the final stretch of the October derivatives series, the broader outlook remains decisively bullish. Strong rollover activity, consistent Put writing at lower strikes, and sustained buying momentum indicate that downside risks are limited in the near term.

As long as the index holds above 25,600, the medium-term trend remains intact, and every decline is likely to witness fresh buying interest. A break and sustained close above 26,000 could trigger renewed long positions and short-covering, driving the index towards 26,300. Conversely, a dip below 25,600 might lead to short-lived profit-taking but is unlikely to disrupt the prevailing bullish trend.

In conclusion, the Nifty remains firmly positioned in a “buy-on-dips” setup heading into the monthly expiry, with sentiment tilted positively. The 25,600–26,000 range will be critical in determining the next directional move, and a breakout above 26,000 could mark the beginning of the next leg of rally.

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