Index Outlook: Hovering on the brink

Lokeshwarri S K | Updated on April 28, 2012 Published on April 28, 2012



Stocks buckled last Monday with the Sensex losing 277 points in that session. They could not garner the energy to raise themselves in the following sessions and instead dragged sideways for the rest of the week. The positive takeaway from last week's trade is the resilience shown by the Sensex and the Nifty in holding above the critical support levels at 17,000 and 5,200 respectively.

Global equity markets tottered in the beginning of the week on worries about Chinese economy slowing but they recovered after mid-week on expectation that the Federal Reserve could soon resort to monetary easing. There was plenty happening in the domestic market also to keep investors riveted. The norms for 2G auction, S&P downgrade of India's long-term rating outlook to negative from stable and the sharp decline in rupee were the factors that dampened sentiments.

Derivative expiry on Thursday was relatively uneventful. Open interest has plummeted below Rs 100,000 crore after the expiry. Cash volumes were subdued while derivative volume spiked higher mid-week as traders rolled-over their positions. Data on auto and cement numbers and HSBC PMI reading will influence trading next week. Earnings will dictate the trend in individual stocks.

Oscillators in the daily chart continued moving sideways in line with the range-bound move in stock prices. Weekly momentum indicators continue in a medium-term downtrend since last February. But they are trying to hold at the neutral zone implying that the uptrend can still be salvaged.

Sensex (17,187.3)

The Sensex declined to 17,056 on Monday and spent rest of the week moving in a narrow band between 17,000 and 17,250. The outlook for the index has not altered much since last week. The short-term trend for the index is sideways in the band between 17,000 and 17,600. The index needs to break out of either boundary to move beyond this morass.

Subsequent short-term targets on upside break-out are 17,781 and 17,946. The short-term view will turn positive only if the index goes on to close above 17,946. This will imply that the third leg of the uptrend from December 20 low is in progress. This leg has the targets of 18,500 and 19,100.

In other words, a lot hinges on the Sensex holding above the 17,000 mark. This is a key Fibonacci support and the 200-day moving average is also positioned there. As long as this level holds, the medium-term view will be positive.

But a strong close below 17,000 will drag the index down to next medium-term supports at 16,920 and 16,852. As we have been reiterating, investors need not worry too much as long as the index trades above 16,850. This level needs to be shattered to imply that the long-term down trend could be resuming.

Nifty (5,209)

The Nifty moved sideways with a negative bias last week. The short-term trend in this index too is sideways in the band between 5,200 and 5,350. The index is currently positioned at the key Fibonacci support around 5,200. The zone between 5,135 and 5,200 is cushioning the stock's decline since early March.

Traders with short-term perspective can buy in declines as long as the index trades above 5,135. If it manages to hold above this level, there is the possibility of a break higher to 5,630 or 5,878 over the medium-term.

Short-term targets on a break above 5,350 are 5,385 and 5,445. Supports for the week ahead would be at 5,135 and then at 5,082.

Global Cues

Global markets moved higher largely buoyed by good corporate earnings. While slowing economic growth in the US and China was a concern, expectation that the Federal Reserve could further resort to quantitative easing supported stock prices. CBOE volatility that had moved higher in the last three weeks, closed sharply lower with a bearish engulfing pattern, reflecting investor optimism.

Dow reversed higher from the intra-week low of 12,845 to close at 13,228. The index is now establishing a narrow trading band between 12,800 and 13,300. The short-term outlook is however positive for the index. We stay with the view that the short-term trend will turn negative only if the index goes on to close below 12,500. Rally beyond 13,300 can take the index higher to 13,986 or 14,198 in the medium-term.


Published on April 28, 2012
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