Index outlook: Market puts up a resilient show

Bulls fought valiantly last week to pull the Sensex and the Nifty from the brink of a deep decline. The benchmark indices hit intra-week lows on Monday but there was a steady recovery thereafter helping them recoup some of the losses made in the Budget week.

This reflects the strong optimistic undercurrent in the market that is attracting investors at every decline. Chart patterns that were appearing vulnerable towards the end of last week have been salvaged. The movement of the indices this week will determine if there will be a halt in the uptrend or if the rally will continue to thunder ahead.

Even as geo-political tensions rocked other global markets last week – with the Malaysian Airlines flight getting shot down over Ukraine and Israel sending troops into Gaza – Indian stocks held rock-steady.

Indian investors were also busy reacting to the slew of policy measures announced by the Government ranging from bringing anti-diabetes and cardiac medicines under price control to putting out a discussion paper on small banks and payments banks.

Economic data released last week was mixed. Consumer price inflation for the month of June declined to 7.3 per cent from 8.3 in May. Exports growth was 10 per cent higher than the same month in the previous year. But trade deficit hit an 11-month high.

Foreign portfolio investors were net sellers in the early part of the week but turned net buyers in the second half. Volumes in both derivative and cash segments were more subdued when compared to recent times. Open interest in NSE’s futures and options segment has crossed the ₹200,000 crore mark. This is rather high considering the fact that derivative expiry is scheduled for July 31.

The progress of monsoon will be the key factor to watch in the coming week. Despite the monsoon finally covering the entire country, it is still 35 per cent below normal so far. Twelve of 36 sub-divisions have received scanty rainfall while monsoon is deficient in eight sub-divisions. Sowing of all crops is lower than last year.

Oscillators on the daily Sensex and Nifty charts have recovered slightly but continue to feature in the neutral zone. It is the weakness in the weekly oscillators that needs to be closely tracked. Weekly relative strength index has declined sharply from the overbought zone and the weekly moving average convergence divergence oscillator is on the verge of signalling a sell.

Sensex (25,641.5) The Sensex recorded the intra-week low of 24,892 on Monday before reversing higher.

The week ahead: The Sensex is poised near an important short-term hurdle at 25,713. Failure to move above this level will mean that the Sensex will decline to 25,214 or 24,892.

Presence of the 50-day moving average at 25,000 makes the zone between 24,900 and 25,200 a very good support zone. But target on a break below 24,892 is 24,415.

If the bullish fervour continues, the index can rise to 25,920 or 26,190 next week.

Medium term trend: The medium term trend in the index continues to be positive. But the index is likely to face resistance in the zone between 26,000 and 26,500. Key medium term support remains at 24,000.

If the index manages to hold above 24,000, subsequent targets will be 27,000 and then 27,848.

Nifty (7,663.9) The Nifty recorded the intra-week low of 7,422.1 before reversing and closing 204 points higher last week.

The week ahead: The rally last week is making the Nifty halt at the short-term resistance at 7,660. Short-term investors should watch their step in the early part of the week. A reversal from current levels can drag the index lower to 7,525 or 7,422.

Presence of the 50-day moving average at 7,470 also adds to the strength of the zone between 7,425 and 7,525.

Target on a decline below 7,422 is 7,299.

Resistance for the week will be at 7,808. If the index gets past this level, the next level is 8,046.

Medium term trend: We continue with the view that the medium term view is positive. This view will reverse only on a close below 7,100. If the index manages to hold above 7,360, it will imply that it is heading towards 8,145 over the medium term.

Global cues It was a volatile week for global indices. This was reflected in the CBOE volatility index rising to a three-month high of 15.3 last week. But fears abated towards the weekend and the US indices managed to recoup their losses.

The Dow closed at a new high of 17,100 last week. The index appears poised to rally further to 17,912 in the days ahead. This target remains achievable as long as the index holds above 16,700.

Other emerging market indices such as the Jakarta Composite Index, Mexico’s IPC, Brazil’s Bovespa and Seoul Composite Index too managed to close with gains.

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