There is something about P. Chidambaram. Right from the time he delivered the ‘dream budget’ in February 1997 he has proved that he has his finger on the market’s pulse. And now, in less than two months since he has taken charge of the Finance Ministry, he has made all the right moves to take the Sensex up 9 per cent.
Stock prices sagged in the early part of the week on fears that the reforms announced the previous week will be rolled back on threats of pull-out by the ruling coalition partners. The 25 basis points CRR cut by the RBI did not elicit any response from the market. But with the position of the UPA alliance becoming less precarious with the Samajwadi Party’s support, coupled with few minor sops announced by Chidambaram, sent stocks shooting higher on Friday to help the benchmarks close the week in the green.
Bears caught on the wrong side of the rally scrambled to cover their positions, further extending the rally. Cash volumes were very strong on the NSE in the truncated week, probably indicating revival of retail interest. Derivative volume was also at a record at Rs 2,44,000 crore on Friday.
Oscillators in the daily chart continue to trade in the overbought zone but there is no sign of weakness yet. This implies that the short-term trend continues to be up. Weekly oscillators are also moving into the bullish zone signalling the onset of a medium-term uptrend. Monthly momentum indicators are also positive.
It will be interesting to see how the Government carries this reform push forward in the weeks ahead. Expiry of September derivative contracts will influence trading as many traders have been betting on a decline from these levels. A bear squeeze can help to extend this rally further.
It would have been a very frustrating week for traders with the index appearing to reverse from the short-term resistance around 18,500, only to rally strongly on Friday, trapping those holding short positions. Our medium-term view for the index remains unaltered.
Next medium-term target of the rally from 15,748 low is 19,136. Since the critical Fibonacci retracement level occurs at 18,826, investors now need to watch out for the resistance band between 18,800 and 19,150.
Targets of the minor counts of the move from 15,748 low too indicate that the index can now move a little beyond 19,000 before reversing lower. The index needs to close below 17,700 to reverse its medium-term outlook to negative.
The short-term trend is buoyant. But proximity to critical medium-term resistance calls for dollops of caution. Short-term supports are at 18,248, 17,867 and 17,250.
The Nifty ended the week above the critical Fibonacci retracement at 5,645. But this cannot be considered as a breakout. For long-term resistances such as these, the index needs to sustain above the resistance for few more sessions to confirm a breakout.
We, however, stay with the view that a strong break above 5,650 will mean that the rally can hasten towards the zone between 5,850 and 5,900. The index needs to record a close below 5,360 to make the medium-term view negative.
The index is at a critical level from a long as well as medium-term perspective. Short-term targets for the Nifty are 5,700 and 5,770. Short-term supports are at 5,527, 5,470 and 5,410.
It was a quiet week for the global markets following the heady moves made in the previous week. Most benchmarks retracted slightly from recent highs to close in the red. Slowing economic growth in China put a dampener on the proceedings. CBOE volatility index that is close to its multi-year low at 13.3 did not decline any further, implying that there was no further improvement in investor sentiment.
Following the brilliant move the previous week, the Dow froze in a very narrow band between 13,500 and 13,650 last week. This move retains the bullish short-term view for the index and targets remain at 13,778 and 14,200. We stay with the view that a close below 13,300 is required to reverse this outlook.
Gold reached the peak of $1,787 last week and then reversed lower. The doji pattern in the weekly candlestick chart calls for some caution. The metal has also retraced 61.8 per cent of its down-move from $1,920. This is also a reversal point. But once it gets past $1,800, a new high would be on the cards.
Short-term trend will turn negative only on close below $1,700. This can also serve as the stop-loss for traders. What is of greater importance is that break beyond $1,800 will also open the possibility of resumption of the long-term uptrend in the commodity.