Behaviour of stocks last week was akin to a cat on a hot tin roof; up in one session, down in the next. This jumpy behaviour was caused by market participants agonising over every economic detail released last week to infer what the RBI would do in the upcoming monetary policy. Stocks finally ended in positive terrain as the consensus veered towards a policy rate cut.
The other major event, Greece election this weekend, kept global investors edgy too. The ECB and Bank of England got into the act, assuring liquidity to solvent banks in the event of a crisis. A relief rally was seen towards the weekend in the global markets. This could be a mere show of bravado or it could mean that stock prices have factored in the worst-case scenario.
Volumes were strong in the derivatives segment though cash volumes were subdued. Open interest in the derivative segment is moving higher to Rs 1,22,000 crore. Predominance of short positions is conducive to a pull-back rally. FIIs were net buyers through the week.
There will be a whirl of activity next week as investors assimilate RBI's action on monetary front, the progress of monsoon, developments in euro zone and the G-20 meet. Reaction of stock prices to the events next week will define the medium-term trajectory in the benchmark indices.
Momentum indicators in the daily chart are moving slightly higher from the neutral zone indicating that the short-term view continues to be positive. Of greater significance is the fact that the weekly oscillators are moving towards the zero line in the negative zone. A strong move above will mean that a sustained medium-term uptrend could be in the offing. The monthly rate of change oscillator too has moved slightly into positive zone. We need to watch this indicator closely over the next few weeks.
The correction witnessed in the Sensex last week is called a running correction. That is the strength in the prior move is preventing it from moving in the opposite direction. Running corrections have bullish connotations. In other words the uptrend that began from the low of 15,748 is still strong. The scenarios for the week ahead are as follows,
Once the third leg of this up-move unfolds, the Sensex could move higher to 17,366 or 17,804. The index faces strong hurdle between 17,366 and 17467. Traders need to watch their step in that zone.
If the index turns jittery on Monday with a Greek election setback, the index can slip down to 16,502 or 16,214. Short-term view will stay positive as long as the index stays above 16,214.
A dire outcome to Greek election followed by absolute mayhem will pave the path for a crash to the previous low at 15,748.
It is tough to predict the movement next week since it is dependent on certain events. But from a technical perspective, the Sensex appears inclined to follow the first, bullish possibility.
If the support at 16,000 holds next week, it will be positive for the medium-term prospects. It will mean that the index could attempt to move to 17,840, 18,523 or 19,136 in the months ahead.
The Nifty too moved sideways with a positive bias last week implying inherent strength in the rally that is in motion since the June low. The third wave of this move can take the Nifty higher to 5,265 or 5,401 in the days ahead.
There is however a strong resistance in the band between 5,200 and 5,265 that short-term traders should watch out for.
If the week starts on a jittery note with the index unable to move beyond 5,150, the index could decline to 5,002, 4,940 or 4,914 in the short-term. Traders can buy in declines only as long as the index trades above 5,000. Decline below 4,914 will mean that the short-term view has turned negative. A re-test of the previous low at 4,770 then becomes possible.
The medium-term trend in the index will also be decided in the week ahead. If it manages to hold above 4,770, then there will be a possibility of the Nifty moving to 5,450, 5,630 or 5,870 over the rest of this year.
Global benchmarks put up a resilient show last week. Most benchmarks held their ground and managed to close in the green. The CBOE Volatility index also surprisingly edged lower. This is a good signal as far as fear and trepidation among the traders goes. DJ Euro STOXX 50 closed 1.7 per cent higher on the concerted efforts by the Central Banks.
The Dow too continued its upward march to close over 200 points higher. Short-term resistance for the index is at 12,810. Once this level is crossed, it can move on to its recent peak at 13,339 and beyond that to 13,800. Key short-term support for the Dow is at 11,620. We maintain the view that the index needs to close below 11,600 to indicate a reversal in the medium-term view.
The dollar index reversed lower from the critical level at 82.8 to end the week at 81.6. This implies that risk-aversion is on the ebb. firstname.lastname@example.org