Sensex (19,386.8)

The holiday splattered week that has just gone by, stands out for chaos and unruliness. Sensex surged over 400 points higher in one session and then went hurtling down by over 300 points in the next, leaving investors bemused. These wild swings make it apparent that both bulls and the bears are currently very nervous and hence are causing exaggerated intra-day moves.

There was however no dearth of news flow in this short 3-day week. A sharp decline in crude prices triggered a bout of boisterous bargain hunting on Wednesday while spike in WPI numbers coupled with disappointing earnings forecast by Infosys caused nervous selling in later part of the week. This choppy movement is likely to continue next week too as stock prices react to the slew of earnings announcements from corporate biggies.

Volumes were tepid in the first half of the week, probably caused by market participants taking an extended weekend. Trading interest revived in the later part once the index began its wild intra-day swings. FIIs were net sellers in two of the sessions. Open interest has edged higher to Rs 1, 40,000 crore. But put-call ratio is also nearing the upper end of its range pointing towards an overbought market.

The daily oscillators were not affected by the market movement last week. 10-day rate of change oscillator is fast dipping towards the negative zone. The weekly oscillators are however more bullish. They are poised in the neutral zone on the verge of launching a fresh up-move. Yet another doji-like formation in the weekly chart implies that the movement over the last two weeks could be just a pause in the rally from March-21 low.

That the Sensex recovered from 19,101 last week bodes well for the short-term prospects. The index has immediate support at 19,205 and 19,039. Presence of 200-day moving average at 19,070 also lends support to the zone between 19,000 and 19,200. If the Sensex manages to hold above this support band, it can attempt to move higher to 20,348 or 21,120 in the ensuing months.

However the strong resistance in the band between 19,650 and 19,840 can not be taken lightly either. Since this occurs at 61.8 per cent retracement of the prior down-move, any minor pullback will have trouble crossing over it. Medium-term targets on inability to move above this resistance band remain at 17,761 and 16,495.

In other words, the medium-term trajectory of the index will be decided in the next couple of weeks and it will be difficult to form a view on the same as long as the index remains in the current trading band. Both bull as well as the bear camp has the chance to pull the index in their direction.

Near-term view for the index is ambivalent.

A strong start to the week can take the index higher to 19,730, 19,840 or 19,973. Approach near the psychological resistance at 20,000 could cause some profit-booking. Strong break above this resistance will take the index to 20,348.

Supports for the week ahead will be at 19,205 and 19,039. Short-term view will turn negative only if the index records a strong close below 19,000.

The Nifty (5,824.5) too was extremely volatile in the band between 5750 and 5950 last week. The index has not yet moved above the key medium-term resistance around 5,959. Those holding short positions can continue to do so as long as the index trades below this level.

Medium-term targets on a strong reversal from this zone stay at 5332 or 4954.

However the movement last week is encouraging from a short-term perspective.

Nifty halted its slide at 5,735 after retracing 35 per cent of the previous up-move.

Key short-term support for the index is at 5716. Presence of 200-DMA at 5725 also makes the zone between 5700 and 5750 very important from a near-term perspective. Fresh short positions are therefore advised only on a close below 5700.

However if the index manages to hold above 5700, there is the possibility of a break higher to 6103 or 6296 in the months ahead.

Nifty could stay volatile in the short-term. A positive start to the week can take the index higher to 5922 or 5994. Supports for the short-term would be at 5716, 5650 and 5580.

Global benchmarks retracted from higher levels last week. European and Latin American indices reversed the nascent uptrend that is in motion since the second half of March. But the cut was not deep enough to cause any consternation.

CBOE VIX fluctuated in a band between 16 and 18 in the early part of the week but broke down on Friday to close at 15. The index is once more at an important threshold and break below 15 will mean that the uptrend can extend for few more months, at least.

The Dow tumbled on Tuesday but the recovery towards weekend helped it close just marginally in the red. The short-term correction has halted above the 50 DMA as well as above one-third retracement of the previous up-move.

This denotes that the short-term view for the index remains positive and it can move higher to 12,400 or even 13,100 in the upcoming weeks. This view will be negated only on a strong close below 12,100.

The dollar index moved below the November lows to close at 75. Next support for this index is at 74.2 that was the trough recorded in November 2009. Close below this level can cause the commodity prices as well as emerging market equity to soar further from these levels.

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