The Sensex and the Nifty managed to break free of their shackles to soar to new heights last week. There was a whoop of joy from market participants as the Sensex moved above 20,000 and the Nifty closed above 6,000.
But last week’s optimism was once again caused by some clever, sentiment-boosting, regulatory tweaks by the Finance Minister. Implementation of the General Anti-Avoidance Rules (GAAR) was postponed until April 2016. With the current account deficit at record highs, the Government appears intent on ensuring continued foreign portfolio inflows, regardless of the colour of the money that comes in.
The Government giving PSU oil market companies leeway to change diesel prices occasionally and slight moderation in the WPI growth were other factors that cheered the market. There was good news from China too. The country’s GDP growth grew at a better than expected rate in the last quarter of 2012. This brings to a halt seven quarters of declining growth in the Chinese economy. Foreign institutional investors have net purchased $2.4 billion of equity so far this year. But interestingly, they have net sold debt instruments in the first few weeks of 2013. Volumes were good in cash as well as derivative segment. Open interest has moved above Rs 1,50,000 crore and index put call ratio above 1 implies that the short positions are increasing.
With both the RBI’s monetary policy meet as well as the derivative expiry due in the last week of January, investors are likely to tread water next week. The market will also have to react to positive surprise from RIL’s earnings on Monday. But since the stock has already run up sharply last week, everyone and their dogs appear to have been privy to this news. Though optimism levels are high on the Sensex closing above 20,000, daily oscillators are displaying loss of momentum. Weekly indicators are however quite strong. This is positive for the medium-term outlook.
The Sensex jived its way up last week with one-day-up, one-day-down kind of a move. As discussed earlier, the medium-term rally from the low of 15,748 in the Sensex continues to be strong.
We had labelled it as the third wave of an irregular flat from the low of 15,135. According to this assumption, the current up-move can go on to 20,430. That is the medium-term target that we are working with.
If the index continues powering on beyond 20,430, next target is 21,230. Since this level coincides with the peaks formed in January 2008 and November 2010, investors need to watch their backs around this level. Medium-term trend in the Sensex will stay positive as long as the index trades above 18,600.
Short-term trend in the index is up. But the two dojis in the daily chart and the volatile moves recorded last week call for caution. If the rally continues next week, targets are 20,350, 20430 and 20,577.
Short-term supports are at 19,790, 19,570 and 19,190. The short-term view will turn negative only if the index declines below the second support.
The Nifty also went on to a triumphant close above the 6,000 level after a roller-coaster week. Our stop loss for the short call was hit on Tuesday but it has managed a close that is barely above this level (6,050). This makes our short-term view ambivalent.
If the week begins with a bang, the Nifty can go on to 6,123 or 6,141. But a sharp surge beyond 6,150 will mean that the index is moving towards its medium term target zone between 6,225 and 6,288.
We retain a positive medium term outlook for Nifty as long as it trades above 5,600.
What if the Nifty begins the week with a whimper? The supports to watch out for then would be 5,995, 5,943 and 5,848. Short-term trend will turn negative on close below 5,940.
Most global benchmarks closed with weekly gains even as investors were mainly focused on the earnings announcements of companies.
CBOE volatility index declined to multi-year closing low at 12.4 reflecting investor optimism.
DJ Euro STOXX 50 has moved above the critical resistance at 2,646 implying that the long-term outlook could be improving for European stocks.
The Dow gained 161 points and it almost attained our short-term target at 13,661.
The week ahead will be interesting as the index is at a critical resistance at 13,660. Short-term view will stay positive as long as the index trades above 13,357.