Index outlook: Monsoon cheer perks up stocks

The rally in Indian stock market that was on the verge of withering completely revived in the monsoon showers.

As rains spread over the country with renewed vigour, investors too seemed perkier, helping the benchmarks close with strong gains.

According to the IMD, rainfall up to June 18 was 10 per cent above the long period average for the country as a whole. While Central India and East and North East India had received excess rainfall, there was a shortage only in the north-west region. The positive impact of rains on inflation and, in turn, the interest rate cycle gave investors a cause for cheer.

The FOMC meeting too did not disturb the market too much as it became increasingly evident that there could be just one rate hike in US this calendar, and a small one at that. The decrease in Indian exports was one of the dampeners in an otherwise cheerful week.

It is going to be a week of edge-of-the-seat drama as far as the Greece debt crisis goes, with an emergency meeting of European leaders called on Monday. The Prime Minister of Greece, Alexis Tsipras, was able to stave off the payment until end-June by using a technical clause in the debt agreement. But with the June 30 deadline, when about $1.5 billion falls due to the IMF drawing near, Tsipras will need to backtrack on his stand on accepting the conditions of the creditors, unless he is ready to let Greece default.

Greek banks have witnessed outflow of about $1.8 billion in just two days last week. If there are indications that a Grexit is imminent, there could be intensified turbulence in the banking system that will cause risk-off trades across the globe.

The derivative expiry scheduled for Thursday will also usher in some nervousness among traders. The open interest in Nifty derivatives at ₹2,29,000 crore is, however, not too high. Nifty put call ratio below 1 also points towards an over-sold market. Surprisingly, despite the rally in market last week, FPIs have been net sellers in most sessions. They have sold stocks worth $520 million in the month of June. The tally for 2015, however, is still robust at $6.3 billion.

The Nifty rose steadily over the week to close 242 points higher. The oscillators in the daily chart have improved after this rally but the deterioration in medium and long-term time-frames continues. The bearish crossover of the 50- and 200-DMA took place last week. Unless it reverses in the next couple of weeks, there could be pain ahead.

The week ahead : The Nifty rose to the intra-week peak of 8,250 on Friday, pausing below the short-term resistance at 8,284. Presence of the 50-DMA at 8,300 and 200-DMA at 8,370 will be the next resistances for the index.

The entire zone between 8,300 and 8,380 will be a strong hurdle and fresh long positions are advised only on a move above this level. Subsequent targets are 8,525 and 8,666.

Short-term supports for the index will be available at 8,060 and 7,944.

Medium-term trend : The rally last week is heartening as it implies that the bulls are not ready to go down without a fight. But the rally needs to move above 8,670 to signal that the medium-term trend has reversed higher.

If the ongoing recovery fails below 8,400, it will imply that the downtrend from 9,119 will resume to take the Nifty to the targets given last week – at 7,795 and 7,367.

The Sensex recovered from the intra-week low at 26307 formed on Monday, to close 890 points higher. The long bullish candle in the weekly chart is a positive but we need to see the action next week before confirming whether this is a morning star formation.

The week ahead : The index moved to our second short-term resistance indicated last week and is halting just below that level. It is also currently testing its 50-day moving average. Investors need to tread with caution in the early part of the week. There is a strong resistance in the vicinity at 27,720. Presence of the 200-DMA at that level adds to the significance of this level.

Reversal from that level will be cue for initiating fresh shorts. Targets beyond 27,720 are 28,189 and 28,595.

Supports for the week will be at 27,000 and 26,750.

It was a mixed show by global markets with some benchmarks making gains while others moved lower. European benchmarks such as the CAC, DAX and the FTSE were weak on worries over Greece. Greece General Share index too worsened, losing 11 per cent.

The Dow remained quite resilient despite the uncertainty over the FOMC meeting. It closed 117 points higher for the week. As we have been reiterating, the index is in a narrow range between 17,500 and 18,300 over the past few weeks. The short-term view however stays positive as long as the index trades above 17,500.

The dramatic 13 per cent fall in the Shanghai Composite Index helps drive home how all good things must come to an end. The bearish engulfing and evening star formation in the weekly chart imply that the correction can continue for a while. The supports that need to be watched are 4,100 and 3,900.

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