Technical Analysis

Index Outlook: A sprint away from life-time high

LOKESHWARRI S.K. | Updated on January 26, 2013 Published on January 26, 2013

The Reserve Bank of India headquarters in Mumbai. The week ahead isgoing to be very lively with F&O expiry, monetary policy meet and a bevy ofquarterly numbers thrown in. — Paul Noronha   -  Business Line



The Sensex is now firmly perched atop the 20,000 level. But a fresh round of celebration could be around the corner since the index is just 5 per cent away from its all-time high of 21,206 recorded in January 2008. The index is emulating its developed market peer in this regard as the Dow Jones Industrial Average is just 2 per cent short of its 2007 peak, which was also its life-time high.

The performance of the Sensex and the Dow is mid-range if we consider all the global benchmarks. While some such as the Indonesian and the Philippines benchmarks are trading more than 50 per cent above their 2007 highs, the Greece General Share Index is 81 per cent below this peak.

Stocks experienced a touch of vertigo last week making both the Sensex and the Nifty slump in the early part of the week. But market revived on Friday on hopes of policy rate cut in the upcoming monetary policy meet. Bout of short-covering ahead of January derivative contracts expiry on Thursday also helped the turnaround.

Movement in stock prices was largely influenced by the third quarter earnings announcements. Reliance Industries, Maruti Suzuki and Larsen and Toubro gained on a good set of quarterly numbers while Hindustan Unilever went into a vicious slide after it declared a sustained slowdown in volume growth. Tata Motors too crashed after JLR announced that December quarter earnings could be lower.

The Government continued to tweak policies by increasing FII investment limit in Government securities and corporate debt, announcing that exchanges should set up an exclusive platform for debt, and hiking customs duty on gold and platinum.

Cash volumes were moderate while derivative volumes rose towards the weekend. Open interest in derivatives has moved beyond Rs 1,60,000 crore as traders start betting on a reversal in market direction. If stocks do not oblige, further short covering could push the Sensex towards 21K. FIIs continue to be net buyers in stocks. The week ahead is going to be very lively with F&O expiry, monetary policy meet and a bevy of quarterly numbers thrown in.

Sensex (20,103.5)

The Sensex slid to intra-week low of 19,884 before reversing on Friday to close at 20,103. The doji-like formation in the weekly chart signifies that market participants are a trifle confused at this juncture. Daily oscillators are also losing steam while the weekly oscillators are still going strong implying that the medium-term trend continues to be up.

We stay with our immediate medium-term target of 20,430 and beyond that to 21,230. As discussed last week, since the second target occurs close to the index’s life-time peak, volatility could start around this level. Medium-term view stays positive as long as the index trades above 18,600.

Short-term trend in the index is sideways. The strong close on Friday can help to pull the Sensex higher to 20,234 or 20,451 in the short-term. Short-term view will turn negative only once the index closes below 19,596.

Nifty (6,074.6)

The Nifty vacillated in the range between 6,000 and 6,100 before closing almost unchanged for the week. We will retain the medium-term targets at 6,225 and 6,288 for the index. Medium-term trend deciding level will remain at 5,600.

Key short-term supports for the Nifty are at 6,003, 5,970 and then 5,941. Short-term traders can hold their long positions as long as the index trades above 6000. Ability to hold this level will signify that the index can move on to 6094, 6163 or 6260 in the weeks ahead.

Short-term view will turn negative only on close below 5940.

Global cues

Most global benchmarks managed to move higher and close with slight gains last week. The Japanese Government’s move to revive the economy has given a fillip to Japanese stocks with the Nikkei closing at multi-year high at 10,941. The index has gained 27 per cent since the low hit last November. If the index manages to move past 11,400, it will signal the onset of a long-term bull-market.

The Dow surged 246 points last week, breaking past the hurdle at 13,600. Strong earnings from US companies could be behind this surge. Of the 142 S&P 500 companies that have declared earnings so far, 66 per cent have beaten estimates. New home sales in the US however declined 7 per cent. The Dow is now poised just a hair’s breadth away from its life-time high of 14,198 recorded in October 2007. It will be interesting to track the movement of this index once this feat is achieved.


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Published on January 26, 2013
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