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The opening act of the earnings season was far from cheerful. Infosys management, at its gloomiest best, left little room for optimism, resulting in both the Sensex and the Nifty opening with downward gaps on Thursday. The damage could not be undone even by TCS’ salvaging act. The Sensex closed 307 points lower while the Nifty lost 90 points last week.
Sentiment in the global market was dampened on indication that the Federal Reserve might not initiate another round of monetary easing. Euro declining to 1.22 against the dollar and China’s GDP growing at a very slow 7.6 per cent in the second quarter were other factors that roiled investor’s mood.
The silver lining in the current market is the stance of FIIs. According to BSE, they have net bought in every session since the beginning of this month. Assuaging statements on GAAR and relatively attractive valuation of the Indian stocks appear to be influencing this attitude. Domestic institutional investors are however busy booking out, net selling continuously through July.
Slight improvement in industrial production, decline in current account deficit and easing of the pressure on rupee are other positive takeaways this week.
Corporate earnings will continue to determine short-term movement in the market. The progress of monsoon is another dark cloud that is looming in the horizon. Inflation data due next week will be keenly watched to guess what the RBI would be doing in the upcoming monetary policy meeting scheduled on July 31.
Reversal last week has resulted in 10-week rate of change oscillator declining in to the negative zone again. Weekly momentum indicators, however, continue in an uptrend implying that the medium-term trend continues to be positive. Movement of monthly rate of change is interesting. It continues to move around the zero line, implying that the long-term trend could be on the point of reversing higher.
Sensex (17,213.7)
The formation of a higher bottom at 15,748 on June 4 is a sign of resilience in the Sensex. The 50 and 200-day moving averages are also converging in the zone between 16,700 and 16,850. As long as the Sensex holds above this zone, the medium-term view will not reverse lower.
Short-term support for the Sensex is at 17,121. Short-term investors need to worry only if the index goes on to close below this level. Upward reversal from current levels will take the index up to 17,691 or 18,006 in the near term. The psychological resistance around 18,000 is the hurdle that investors need to watch out for once the index moves beyond 17,600.
The index has gained about 11 per cent from its recent low at 15,748. How much farther can it go from here? We need to look at the long-term chart to answer this question. The long-term trend is down since the peak of 21,108 recorded in November 2010. One leg of this move ended at 15,135 last December.
The rally from this trough was clearly corrective in nature since it reversed after retracing about half of the previous down-move. The most likely count at this point is that the Sensex is charting an irregular flat pattern now. The third leg of this pattern that is currently unfolding has the targets of 17,842, 19,136 and 20,430. A strong close below 16,500 is required to negate this positive medium-term view in the Sensex.
Nifty (5,227.2)
The Nifty too recorded the peak of 5,348.5 last week. But it reversed thereafter to end the week 89 points lower. The short-term trend in the index continues to be up. This trend will reverse down only if the index goes on to close below 5,192.
Reversal higher from these levels will mean that the index can move on to 5,373 or 5,470 in the upcoming sessions. It needs to be remembered that the Nifty faces key short-term resistance at 5,300 and the near-term view will turn overtly positive only on an emphatic close above this level.
The medium-term trend in the index also continues to be positive. Supports in this time-frame will be at 5,030 and 4,991. The presence of both the 50 and 200-day moving averages in the band between 5,050 and 5,100 means that the index will receive support in this zone, should there be a strong decline.
If we consider the long-term picture, the index appears to be in the third leg of the correction that commenced from the low of 4,531. This leg has the targets of 5,450 and then 5,870. The index also has significant Fibonacci resistance at 5,660.
Global Cues
Most global benchmarks moved sideways and ended the week with slight losses. Investors continued to be sanguine and this is reflected in the CBOE volatility index declining to end around 16.5.
The Dow declined in the earlier part of the week but recorded a sharp turnaround on Friday as JP Morgan reported stronger than expected earnings. This relief is not expected to last as the murky details of how the bank camouflaged its $6 billion loss are already beginning to emerge. The index bounced off 12,492 that is 50 per cent retracement of its short-term uptrend since June. The index will continue to face resistance in the band between 12,850 and 12,950. This zone needs to be cleared before the index breaks higher to the recent peak at 13,339.
While some Asian benchmarks including Philippines Composite and the Nifty halted their short-term uptrend, KLSE composite went on to new life-time closing high last week.
lokeshwarri_sk@thehindu.co.in
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