It was another gritty show by the market last week. The benchmarks held on to higher levels and moved in a tight range even as the swirl of negatives led by weak rupee and deteriorating macro numbers did their best to dislodge them. Both the Sensex and the Nifty closed the week with gains.
The stubborn rupee, that continued to stay ensconced around the 60 level and the Government and the Reserve Bank of India’s desperate measures to curb it, absorbed market participants in the early part of the week.
The RBI’s move to tighten liquidity made the 10-year government bond yield spike above 8 per cent, causing an exodus out of debt funds.
The announcement of tweaks in FDI caps in various sectors is also likely to be equally ineffective in checking the rupee in the near term.
Volume in cash as well as derivative segment was higher in the later part of the week. There were pockets of intense stock-specific activity as stocks reacted to earnings announcements and various government policy moves.
Rising put call ratio in index options implies that many traders are betting on the market reversing lower.
Open interest on the NSE has also crossed Rs 1,50,000 crore setting the stage for a bout of volatility as the July derivative contracts roll into expiry next week.
Foreign institutional investors were net sellers in the equity market through last week. Their tally for net sales has now risen to $1 billion in July. Their net sale in debt in July was $1.8 billion.
Global markets were gung-ho last week despite news of slowdown in the Chinese economy. EPFR Global-tracked equity market funds recorded inflows to the tune of $19.7 billion last week. Both the US as well Japanese equities are reported to have attracted inflows.
Oscillators in the daily chart are poised in the bullish zone following the continuation in the uptrend in the indices in the short-term.
The indices are also continuing to trade above their 50 and 200-day moving averages. Weekly oscillators are ambivalent indicating that a movement in either direction is possible over the medium-term.
The Sensex reversed from the intra-week low at 19,650 to close above the 20,000 level.
The black candle formed on Friday is not a positive sign. It is possible that the index reverses lower from these levels to decline to 19,883 or 19,648 in the coming week.
If the index manages to hold above the first support, it will mean that the rally can continue to take the index higher to 20,443 or 20,664 in the short-term.
Close below 19,648 will indicate a reversal in the short-term trend. Next downward target for the index would be at 19,163.
The index is in a sideways consolidation phase for the medium-term. If the index reverses before 20,400, it can decline once more towards the 19,100 to 19,200 band. This level needs to be breached emphatically for us to get worried about the medium-term prospects of the index.
The Nifty too reversed from the low of 5,910 and managed a weekly close above 6,000. It is possible that the index reverses lower in the early part of next week and declines to 5,967 or 5,908.
Traders can buy in declines as long as the index trades above the first support. Reversal from here will mean that the index can move on to 6,133 or 6,230 in the short-term.
Short-term trend will turn negative only on a decline below 5,908. Next target for the index would be 5,816 or 5,757.
Our medium-term view for the index stays unaltered. If the index reverses before 6,200, it can decline to the 5,750 level as the sideways consolidation phase that began from the 6,230 peak continues. The going will get painful only on a strong breach of the 5,750 level.
Global equity market recovered further after they were assured by central bankers that winding down of quantitative easing would depend on numbers emanating from various economies and cannot be tied down to fixed schedules. CBOE volatility index declined to 12.5 as investor confidence improved further on continued rally in global stock prices. The Dow recorded its highest weekly close last week, ending at 15,543. Immediate target on close above 15,500 is 16,435.
The medium-term trend will remain positive as long as the index trades above 14,400. The S&P 500 too closed at a record high at 1,693 last week.