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Infosys expressed concerns about global IT spends in the next fiscal but their guidance was innocuous; WPI growth for the week was 7.14 per cent, at least it did not cross 7.5 per cent; Citigroup reported a steep quarterly loss and said 9000 employees would be laid off, however their earnings beat analyst estimates - this was the kind of dialogue heard in equity markets last week as investors cheered themselves by focusing on the silver linings. Sensex closed with a weekly gain of 673 points.

Renewed interest was perceived in small and mid-cap stocks. Turnover stayed indifferent. The bears had got it right so far over the last three months, by selling on rallies. But they were caught on the wrong foot last week as the market did a volte-face and headed higher. India VIX closed at 27.8 on Thursday versus 33.8 at the end of the previous week denoting the return of optimism among investors.

The weekly oscillators moved up very smartly last week displaying an inclination to finally shake-off the gloom. But the 10-week rate of change oscillator is still in the negative region and the 14 week relative strength index is poised at 45. The implication is that one more upward push is needed to turn the medium-term outlook overtly positive.

We had outlined three possible moves for Sensex in last week’s column. Of these, the first one, that indicated a fall below 14,000 in the near-term, has been ruled out by the up-move last week. The other two counts are still valid. These are that the move from 14677 is the B wave of the correction from 21206. Whether this wave will result in a sideways move between 14500 and 17200 for a few more months or if it will propel the Sensex up sharply towards 18000 or 19000 will be apparent over the next two weeks.

The current short-term up-move in the Sensex can take the index a little higher to 16680 or 17078. The 50-day moving average at 16600 and the 200-day moving average at 17350 will be the two key barriers next week. Partial profits can be booked on short-term positions if the index reverses from these resistances. Supports for the week would be 15840 and then 15400. The near-term outlook will turn negative only on a decline below the second support.

Nifty moved higher towards our near-term resistance band between 4943 and 5135 last week. Traders need to stay alert as long as the index grapples with this barrier. The targets for the third leg of the move from 4448 trough are 5132 and then 5442. In other words, fresh long positions are recommended only if the index closes past 5132. The subsequent medium-term target would be 5200 and then 5400.

The presence of the 200-day moving average at 5135 and the key Fibonacci retracement level just above at 5200, would be keenly watched in the week ahead. The support next week would be at 4795 and then at 4673.

Investors ought to stay circumspect until the index closes past 5200.

It was a strong week for most equity markets. CBOE VIX, the volatility index that is also known as investor’s fear gauge moved below its medium-term trend line and also the 200-day moving average, implying that the upswing in investor sentiment can be more sustainable this time. The Dow Jones Industrial Average closed firmly above the medium-term resistance at 12750 on Friday implying a possible move towards 13200 now. S&P 500 has just drawn close to the resistance at 1395.

One more strong week - and equities would be able to shake off the negative medium-term outlook.

Asian markets in countries such as Thailand, Taiwan and Indonesia posted strong gains while European markets held on to the gains recorded in the previous week. Commodities are once more on the upswing as denoted by the CRB index that is reaching for its former peak once again after the sharp correction in March. Nymex crude is showing no signs of slowing. Since it has moved past $115, the next target is $125.

— Lokeshwarri S. K.

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