Sensex (19,602.2)

Stock prices drooped in the early part of the week but revived on Indian Meteorological Department's initial forecast that monsoon will be normal this year. Similar bravado displayed by other global markets that surged higher despite volley of worries helped domestic stock prices as well.

Economic data was mixed with high food inflation countered by robust growth in exports. Earnings announced last week were benign enough not to rock the market. Stock prices will continue to react to these announcements next week too. The upcoming RBI's monetary policy will also weigh on the minds of market participants.

 Volumes were moderate and investors were relieved to note that foreign institutional investors once again turned net buyers. According to market regulator SEBI, they have purchased $1.9 billion worth of securities in April so far. Open interest is edging higher above the Rs 1, 50,000 crore mark. Expiry of April derivative contracts could cause some volatility in the days ahead.

The rate of change oscillator in the daily chart continues to dip in the negative zone implying that the short-term is still under a cloud. The weekly oscillators are, however, attempting to rise higher in the positive zone. This is bullish from a medium-term perspective. The monthly oscillators are also holding in the neutral zone denoting that the long-term trend could be determined in the upcoming weeks.

The Sensex briefly flitted below the 19,000 level on Tuesday but recovered in no time to close the week over 200 points higher. What is more significant is that the index managed to bounce off its 200-day moving average and closed above this line on Tuesday. As explained last week, if the index manages to hold above the 19,000 level, it is a bullish medium-term indication.

It will then denote that the move that commenced from 17,792 will unfurl its third leg that has the targets of 20,224 and 20,995; to be achieved over the medium-term. Such a move will reduce the downside risk considerably and move the trading band for the rest of this year between 17,000 and 21,000.

That said we cannot presume that the index will break out higher immediately. The strong resistance at 19,840 has to be shattered before this can happen. Failure to do so can make the index vacillate between 19,000 and 19,800 for few more weeks.

We will, however, have to revise our positive medium-term view only on a close below 19,000. Decline to 18,800 or 18,570 will then be possible.

Investors should brace themselves for another volatile trading week. The Sensex closed the week on a gung-ho note but it will again face difficulty in rising above 19,800 and 19,840. Reversal from these levels can drag the index down once again to 19,500, 19,300 or even 19,000. Target on a move above 19,840 is 20,224.

The Nifty (5,884.7) moved briefly below the 5,700 level before rebounding strongly on Tuesday. As explained in our last column, the index has strong support around 5,700 where the 200-DMA is also positioned. If it continues to trade above this level, breakout higher to 6,061 or 6,289 becomes possible over the medium-term. This positive medium-term view will be negated only on a close below 5,700. Subsequent supports are 5,650 and 5,580.

 In the short-term however, the index will face resistance from the zone around 5,960. Inability to surpass this level can drag the Nifty down to 5,850, 5,800 or 5,700 in the days ahead. Target above 5,950 is 6,061.

Global Cues

Equity markets globally pulled higher from lower levels to close the truncated week slightly in the green. One index that is surging merrily higher is the Biotech Index that is at a new life-time high. It is up 11 per cent this year alone, implying renewed interest of investors in this sector. The volatility index declined from an intra-week peak of 19 to close the week at 14.7, reflecting the current bullish sentiment towards equity markets.

The Dow recovered from the intra-week low of 12,093 on Monday to close the week at 34-month high, in line with our expectation. Immediate target for the index is 12,640 and then the May 2008 peak of 13,137. We stay with the view that a strong close below 12,100 is required to negate the positive short-term view for this index.

However, if we extrapolate the long-term move from 6,469 low, the targets for this move are 12,573 and then 14,400. In other words, investors need to watch out for a long-term reversal at current levels.

Some of the Asian indices such as Jakarta Composite, Philippines PSE Composite, Seoul Composite, Thailand's SET closed at new 52-week highs last week. The dollar index closed below the November 2009 low of 75. Next support is around 72 where it halted in July 2008.

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