As the countdown to the FOMC meeting begins, the best place to watch the action is from the sidelines. For Yellen might hike 25 bps, she might not; the market can crash if she hikes rates and the market can crash even if she doesn’t. Putting off rate hike imples that the US economy is not doing too well. No one really knows what is going to happen in the short term.

But with the ongoing decline, both the Sensex and the Nifty have moved close to some important short-term supports which are around 7,400 in the Nifty and 24,500 in the Sensex.

If you are a long-term investor, you should keep your shopping list ready as indices approach these levels. You need to press those panic buttons only on a strong decline below these levels.

Markets that were threatening to jump off a cliff if the Fed goes ahead with its September rate hike, have now convinced themselves that the rate hike is unlikely. According to Bloomberg, those betting that the Fed will hike rates next week are down to 28 per cent from 49 per cent before China began tampering with its currency. Bets on a December rate hike have however increased to around 59 per cent.

The bottom-fishing brigade was out in full force last week buying stocks in all global markets, pushing indices higher. The bounce last week was however not supported by volumes and lacked conviction. Even if the Fed postpones the rate hike to December, it still does not address the problem of eventual increase in the cost of money, slowing global economy, bleak crude oil outlook or the troubles in China.

Economic data continues to be mixed. The consumer and wholesale price inflation numbers due next week will be closely watched to decipher the RBI’s next move on interest rates. Foreign portfolio investors continued selling last week, even as prices moved higher. The bounce appears led by retail investors and domestic institutions. Currency stability also helped improve sentiment.

How they oscillate Daily oscillators have reached oversold levels. But the price rate of change oscillator in the daily chart is reversing lower after hitting the zero line. This means that the bounce last week lacks momentum.

Weekly oscillators continue plunging deep into the negative zone, signalling a weak medium-term view. Monthly indicators continue in the positive zone but they are beginning to emit sell signals. This is the most worrying part as for now.

Nifty (7,789.3) The Nifty hit the intra week low of 7,539 and closed the week 134 points higher.

The week ahead:  There was a strong rebound in the Nifty on Tuesday but the index lost momentum over the later half of the week. There are also a slew of hurdles just ahead for the Nifty – at 7,880, 7,962 and 8,060. The last hurdle is the floor of the gap formed on August 24. We need a strong move above this level to signal that the short-term trend is reversing higher.

If we consider e-wave counts, the fourth minor from the 8,654 peak appears to be unfolding now. This wave can reverse below 8,000 and the index can once again move lower towards 7,539 or 7,251.

A more sustainable rebound is possible after that. To put it simply, there could be great volatility in the region between 7,500 and 8,000 in the coming sessions.

Medium term trend:  The medium-term trend is currently negative. The bounce last week has not been strong enough to signal a turnaround in this trend.

As we have been reiterating, there is a strong support for the index at 7,475 (the target of the C wave down from 9,119) and at 7,380 (a Fibonacci retracement support). The index is very likely to halt its slide in the zone between 7,380 and 7,500 in this bout of selling.

That said, things will get very bad only on a strong decline below 7,400. That will mean an intense and elongated C wave that can pull the Nifty below 7,000.

Sensex (25,610.2) The Sensex rebounded from the intra-week low at 24,833.54.

The week ahead:  But the index lost momentum after Wednesday. It faces immediate resistances at 26,207 and 26,730. These levels need to be crossed before the short-term trend turns positive.

If the index fails to make headway on Monday, it can decline to 24,851 and 24,451.

The area around 24,500 is also an important medium-term support for the Sensex. Long-term outlook will be under threat only on a close below this level.

Global cues Global benchmarks that were on the verge off plunging sharply paused last week and oscillated at lower levels. But not too much should be read into this pull-back. The short-term trend has not reversed higher for these indices yet.

The VIX moved in a band between 25 and 27, well off the recent high of 53 recorded a couple of weeks ago. This implies that investors are a less worried lot right now.

European indices are not displaying any strength and the DJ Euro STOXX 50 closed with mild gains despite a strong upward surge in the early part of the week.

The Dow hit an intra week high of 16,664 before closing at 16,433. The index tests the important resistance at 16,600. Inability to move above this level will mean that the index is heading towards 15,500 again, whereas a move above 16,600 can take the index to 16,900 or 17,300.

comment COMMENT NOW