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Even as the world raised a toast to United States of America that voted for a new order in which racial hierarchy ceases to matter, stock markets reversed downwards. It was probably President-elect, Barack Obama’s grim reminder about the “worst financial crisis in a century” that brought the six-day-old party in equity markets to an abrupt end.

Indian markets moved in tandem with the rest of the global markets, rallying merrily up to Tuesday and reversing sharply lower on Wednesday. Volumes were high in the first half of the week but it petered off towards the weekend. Light open interest in the derivative segment implies that trades are unwilling to take bets on the market’s next move, given the high volatility.

Sensex declined 63 per cent from its January peak when it hit the low at 7697 on October 27. This fall exceeds the other declines witnessed in the Indian stock markets over the last three decades. The decline following the dot-com bubble was 57 per cent from the peak while that in 1992-93 was 56 per cent. The correction in 1986-88 was a milder 40 per cent. As per Elliott wave analysis, corrections can be deemed complete if they fulfil either the time or the price criteria. This decline has already met the price criteria and deep corrections generally consume lesser time.

Can we then infer that the market has formed a long-term bottom at 7697? The answer is, no. This decline is akin to nothing that we have seen before and the rule-books of technical analysis would have to be rewritten once this down-trend is through. It is therefore best not to jump to premature conclusions and to let the market show us the way forward.

The 10-day rate of change oscillator is moving in to the positive zone and the 14-day relative strength index too has moved up from over-sold area and is placed at 43. The implication is that the short-term outlook is mildly positive. There are however no buy signals yet in the weekly oscillator charts. A spinning top candlestick pattern was formed in the weekly chart denoting indecision; that is, a move in either direction is possible next week.

Our medium-term view too is ambivalent. Sensex reversed from the peak at 10945 on Wednesday. Our medium-term trend deciding level at 10,700 was breached only fleetingly on that day. This remains an important resistance level and penetration of this level will pave the way for a rally to 11630 or 12879. It is however difficult to envisage a move beyond the second target just yet.

The short-term trend in Sensex is positive. If it holds above last week’s trough at 9600, there can be a surprise rally to 10945 or even 11630. Immediate supports for the index are at 9320 and 8930. The index needs to close below the second support to negate this view and re-kindle the gloom and doom scenario.

Nifty reversed from the peak at 3240 on Wednesday and closed the week with an 87 points gain. Our medium-term resistance level was tested very fleetingly and it remains the key level to watch out for. However, the fact that the index is holding above the 2860 in the recent pull-back is a positive for the short-term and if this level holds, Nifty can rally once more to 3240 or even 3471. Support below 2860 would be at 2628. The near-term view will turn overtly negative only on a penetration of this level.

Though the short-term view is positive, the medium-term view is neutral. The zone between 3175 and 3250 will try to thwart any up-move. However, if this level is surpassed, there can be a surge to 3470 or 3740.

Global markets rallied in the first half of the week but reversed sharply from Wednesday. However, most of these markets are well-above the lows recorded in the last week of October. The CBOE volatility index declined to 44 on Tuesday, but it rebounded sharply to end the week at 56. Dow Jones Industrial Average recorded an intra-week peak at 9653, below the medium-term resistance at 10,400, indicated last week. The sideways move between 8000 and 10000 appears likely to extend for a few more weeks in this index.

Asian equities put up a relatively stronger performance last week. The Shanghai Composite is the only index that is unable to make headway and is close to its October lows. Commodities gave up most of the gains recorded in the previous week. CRB index that tracks commodity prices declined 2 per cent for the week.

— Lokeshwarri S.K.

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