With key events lined up for the coming weeks, indices are biding their time.

It was a strong show of strength by the bulls early last week, pulling the indices back from the brink of certain collapse.

The impetus for the upmove was provided by weak US jobs data. This led to expectation that the taper of the quantitative easing program will not be accelerated, thus ensuring ample liquidity for the markets.

Cooling of consumer price inflation and the wholesale price inflation growth slowing to a five-month low of 6.16 per cent further stoked optimism; this time on hopes that the RBI Governor might not hike policy rates in the upcoming monetary policy meeting.

But investors developed cold feet on Thursday as the Sensex and the Nifty neared their previous record highs. Sabre rattling by the Congress on Friday once again reminded market participants that investors need to see the 2014 elections through before taking bets on market direction.

The weeks ahead could see more of the same; surges in optimism among market participants getting doused by the shenanigans of our politicians. As the end of the month draws near, market participants will once more start worrying about what the RBI Governor and the Federal Reserve’s Chairman have to say in their respective policy meetings scheduled this week.

Volumes were moderate in both cash and derivative segment of the market. Index put-call ratio above 1 implies that the market could be getting overbought at this juncture. FIIs have turned net buyers again but their net purchase is very small.

The net inflow for January in equity stands at a mere $349 million. But inflow into debt has already reached $2.6 billion. Oscillators on the daily chart are moving sideways in the neutral region, signalling that the short-term trend in ambivalent.

The weekly price rate of change oscillator has risen above the zero line once again. Other weekly oscillators are also featuring in the bullish zone, implying that the medium-term trend continues to be positive.

Sensex (21,063.6)

The Sensex moved to the intra-week high of 21,379 before declining towards the weekend. The movement last week has fuddled the short-term view. The Sensex has moved in the range between 20,550 and 21,500 since December. There are two ways in which this move can be viewed.

It could be a consolidation phase before the next upmove. This will imply that the medium-term uptrend from the low of 17,448 has one more leg to go. We need a strong close above 21,500 to prove this count right. The minimum target in this case is 23,000.

The other medium-term count is that the move from 17,448 is in its final stages and forming a terminal pattern. Continued sideways move between 20,500 and 21,500, followed by a break below 20,000 will mean that the index has topped out and is headed lower in the medium term.

It is hard to judge which of the two scenarios is unfolding since the short-term trend is sideways. We need to see the movement over the next couple of weeks to draw any conclusion. But it is obvious that the medium-term trend is up and a strong move below 20,000 is needed to negate this view.

The short-term trend is down since the index is reversing lower over the last two sessions. Immediate supports are at 20,913, 20,821 and 20,625. Reversal from any of these levels will take the index higher again.

Resistances for the short-term are at 21,379; 21,483 and then 21,973. In short, the area around 21,500 will be the key hurdle in the near-term.

Nifty (6,261.6)

Nifty hit the high of 6,346 before reversing lower. The index is moving in the range of 6,130 and 6,415 since the first week of December. We are unable to discern the next medium-term move at this point.

A strong break above 6,420 will mean that the next leg of the move from the 5,118 low is unfolding. Minimum target in this case would be 6,590.

If the index moves sideways for a couple of weeks more and then breaks lower below 5,900, it will mean that the medium-term trend has reversed lower.

We will have to decide on the medium-term view after seeing the movement over the next couple of weeks.

The short-term trend in the index is down. Immediate support that needs to be watched is at 6,221.

The next support is at the 200-day moving average at 6,200 and the previous trough at 6,173. Short-term investors can watch out for upward reversal from either of these levels. Short-term resistances are at 6,346; 6,415 and then 6,421.

Global cues

European markets continued to move higher. DJ Euro STOXX 50 closed at the highest level since October 2008.

This implies that European equities could be moving into a long-term uptrend. European indices such as CAC, DAX, FTSE and others are at record highs.

It is no wonder that mutual funds in India are jumping on the European bandwagon to launch a series of funds investing in European stocks.

The European theme appears to have caught market fancy globally too. According to EPFR Global, Europe Equity Funds recorded inflows of over $4 billion for the week ended January 15.

The Dow Jones Industrial Average did not make any headway last week as quarterly earnings were mixed, failing to provide a trigger for the index. The index is moving sideways in a narrow range over the last three weeks.

This appears to be a consolidation with the possibility of a break higher in the days ahead.

Short term view will turn negative only on a move below 15,650. Key medium-term support is at 14,720.

Global crude prices have not made any progress since 2011. After a sharp upmove from the low of $32 in 2008, it has moved sideways between $80 and $110 over the last three years.

While this can be construed as a consolidation before a breakout, it needs to be noted that the key Fibonacci resistance for the decline from $147-peak occurs at $104.

It is possible that this is a distribution phase with the crude prices set to move down to $80 or $65 over the years ahead. The long-term outlook for crude will turn adverse only on a strong move below $65.


(This article was published on January 18, 2014)
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