The European Central Bank set off a scramble for riskier assets on Thursday with the announcement of its bond-buying programme. Indian stocks that were slipping in a lackadaisical manner over the last two weeks ricocheted upwards on this impetus.
The upbeat mood held in Saturday’s special trading session as weak US jobs data made market participants hope for a similar largesse from the Federal Reserve. The Sensex ended the week 320 points higher while the Nifty gained 100 points.
It was a dull first-half for equities last week. While the Shome committee’s recommendation to postpone GAAR implementation was welcomed by market participants, suggestion to do away with capital gains tax and hike STT sent a shiver of concern through the trading fraternity.
It is hoped that when the regulations are eventually modified, the suggestion on STT is disregarded. This move will only serve to increase the already high transaction cost on our bourses, making external investors move to other jurisdictions with lower costs.
Volumes were lacklustre in both cash and derivative segments through the week, but derivative volumes perked up on Friday as market took off skywards. Index put-call ratio started creeping higher implying that traders are getting nervous at higher levels.
The Federal Open Market Committee meeting next week and the RBI’s mid-quarter monetary policy review due in mid-September will vie for investor attention. The bulls are likely to press their advantage and attempt to take stocks further. The bears who were caught snoozing on Friday could ready for a fight-back, too. An interesting battle awaits us in the week ahead.
The Sensex recorded the intra-week low at 17,250 before moving higher sharply on Friday.
The index, thus, retraced half of its rally from the 16,598 low. If we assume that the rally that began on Thursday is the third part of the up-move from the 16,598 low, we get the short-term targets at 18,100 and 18,624. The index however has key short-term resistance at 17,696. It is currently poised just below this level. The rally needs to sustain on Monday to signal that the index is heading towards the targets mentioned above.
But reversal on Monday will mean that the rally was of a flash-in-the-pan kind. The index can then move down to 17,250 and 16,978 again in the near term. As far as the medium-term view is concerned, we are not yet certain if the rally from the 15,748 trough ended at 17,972 or if this rally will sub-divide further. We stay with the view that a strong close below 17,000 is needed to signal the reversal in medium-term trend. The medium-term target on a strong move above 18,000 is 18,480.
The Nifty recorded an intra-week low at 5,217.6 on Thursday before reversing smartly higher. The index has immediate resistance at 5,360. It is currently hovering just below this key level.
The movement on Monday will determine the short-term trajectory in this index.
Close above 5,360 on Monday will mean that the index can move to 5,474. The index will face a minor hurdle around its previous peak at 5,448. But strong close beyond this resistance can take the index to 5,633.
On the other hand, failure to move higher from these levels will mean that the index will turn tail and decline to 5,272 or 5,217 in the days ahead. The target on move below 5,217 is 5,132. The medium-term trend continues to be positive for the index. A close below 5,200 is needed to reverse this view. Subsequent supports are at 5,111 and 5,032.
Most global indices closed the week in the positive terrain. Strength in equities sent the CBOE volatility index sharply lower. This index has formed a large bearish engulfing candlestick pattern in the weekly chart as investors cheered the possible onset of yet another buying wave.
The Dow recorded a sharp jump on Thursday, erasing out all the losses made in the previous weeks. As mentioned earlier, the index has strong short-term support at 13,000. Reversal from this level implies that the index can move on to 13,800 once it gets past the 13,300 hump. The medium-term support for the index will stay at 12,800.
The dollar index declined further last week to close at 80.2. As explained before, reversal from the critical resistance at 83 bodes ill for this index.
It means that the index continues in a long-term downtrend and can move lower to 77 or even lower in the upcoming months. This spells good news for our market that can benefit from money flowing out of dollar-denominated assets to riskier ones.