Frontline indices flattered only to deceive last week. Even as market participants were in raptures over the Sensex closing at a multi-month high, it reversed sharply to close 600 points below its intra-week peak. The Nifty, too, turned wobbly and collapsed to end the week below 5,900.
The shenanigans of the Reserve Bank of India, in its bid to control speculation in the rupee, caused another bout of turbulence in the bond market last week. They moved to tighten liquidity available to the banks further thus pushing up short-term interest rates causing a sell-off in equity market. The rupee grudgingly retreated from the 60 level.
The jumpy mood of the central bank in the recent past makes it likely that it will spring some unpleasant surprise for the market in its monetary policy meet next week. This could keep investors edgy in the early part of the week.
Lacklustre quarterly earnings from some of the frontline stocks such as Larsen and Toubro, Hindustan Unilever, Maruti and so on added to the gloom on the street last week.
There was no clear trend available in FII investments. They were net buyers in some sessions and net sellers in others. Expiry of the July derivative contracts might have contributed to the volatility last week. Open interest on Friday had declined 60 per cent on the day after the expiry implying that many traders were caught on the wrong side and had to square their position.
Oscillators in the daily chart are moving lower after giving a sell signal. But they continue in the bullish zone. Another week of down-move is required to signal a reversal in the short-term uptrend. The plot is identical in the weekly chart too. This means that though the medium-term trend could reverse soon, it has not happened yet.
The Sensex moved higher in the first two sessions to hit the intra-week high of 20,351. But the subsequent decline pulled the index down to the 19,700 level. Key short-term support for the index is now at 19,650.
There is a confluence of factors lending support to this level including an important Fibonacci support, recent trough and the presence of the 50-day moving average in the vicinity at 19,550.
Short-term investors can continue to play long as long as the index trades above 19,550.
Move above this level will mean that the index can move on to 20,443 or 20,763 in the short-term.
The short-term trend will reverse lower only if the index goes on to close below 19,200.
Since the 200 day moving average is also positioned at 19,300, the band between 19,200 and 19,300 can prove to be a reliable short-term support, should the going get difficult.
The medium-term view for the index has not altered. The index is in a sideways consolidation trend over the medium-term.
The third part of this sideways trend could have begun last week from the peak of 20,351. In that case, the index has the minimum downward target of 19,200. If this level is breached, decline to 18,050 will be on the cards.
This count will have to be revised if the index does an about-turn and moves above 20,500 in the next couple of weeks.
The Nifty too reversed from the intra-week high of 6,093.3. The closing on Friday was on a very weak note with the index declining below its 50 day moving average as well as its key short-term support at 5,900.
But since the index has not breached this level strongly yet, we need to give one more day’s leeway to the index.
Reversal from current levels on Monday will mean that the index can move higher to 5,956 or 6,010 in the short-term.
Inability to move beyond the first resistance will be the cue for traders to initiate fresh short positions.
The short-term trend will turn positive on close above the second resistance with the next target at the previous peak of 6,093.
If the week starts on a weak note, the index will initially get support at 5,852 where the 200 day moving average is positioned. If this level is breached, the next target would be 5,771.
The medium term trend is sideways in the range between 5,600 and 6,200. The third part of this sideways move appears to be unfolding since last week. This wave has the targets of 5,683, 5,566 and then 5,429.
Most global indices headed higher last week as fears of the Federal Reserve winding down its quantitative easing in near future abated.
CBOE Volatility index that had spiked to 22 towards the end of June with higher risk perception, declined towards its recent low at 11 implying greater confidence among the trading fraternity.
The Dow remained at higher levels, vacillating between 15,400 and 15,600, before closing unchanged for the week, forming a doji in the weekly chart.
The short-term trend in the index is however still up. If the index manages to hold above 15,200, it can move on to 15,840 or 16,400 in the weeks ahead.
The weakness in US dollar was conducive to gold that moved up to the intra-week high of $1,348 before giving up some gain.
Gold has resistance at $1,350, and then at $1,400. Unless there is a sharp break above these levels, the outlook will remain under a cloud for the near-term.
Nymex crude futures are also retreating from the near-term resistance at $110. It is to be seen if the level of $100 holds now.
If it does, then it will imply a propensity to move higher towards $115 in the weeks ahead.