Stocks threw away their despondent air to trudge slightly higher last week. The RBI's higher-than-expected policy rate cut was largely responsible for the market perking up. But the accompanying statement that there would be no further rate cuts in the immediate future capped the rally. Worries about weak earnings from market bellwether Reliance Industries, also kept prices in check.

Volume in both the cash and derivative segment was slightly higher on Tuesday, the day of the monetary policy announcement, but it tapered off thereafter. Open interest is edging higher close to Rs 1,22,000 crore. But put-call ratio close to 1 indicates that the bulls and bears are equally divided at this point. FIIs were net buyers in the secondary market according to data put out by exchanges.

Focus will now shift to derivative expiry scheduled for next Thursday. Quarterly earnings will also keep market participants riveted. With the monetary policy also over and done with, it is hard to see what the next trigger can be to take the market in either direction.

Given the current state of affairs, the Sensex appears set to vacillate in the range between 17,000 and 18,500 over the upcoming weeks. Corresponding range for the Nifty is likely to be between 5,100 and 5,650.

This fits in very snugly with the famous stock market adage, sell in May and go away. Empirical studies in the US stock market have revealed that stocks tend to underperform in the period between May and October. The reverse is true of the period between November and April. But like all other stock market sayings, this one too is more apt for a casual tea-time chat than for incorporation in to serious trading strategies.

Sensex (17,373.8)

The Sensex moved to the peak of 17,530 before giving up some ground. The index is in a down-trend since the February 22 peak of 18,523. This decline is halting around the significant Fibonacci retracement level of 17,252. The 200-day moving average is also positioned below the current position of the index, at 17,052.

As we have been reiterating, rebound from the current levels will be positive from a medium-term perspective as it would mean that the index can move on to 18,500 or 19,100 again. The index faces long-term resistance around 19,000 and it is quite likely that the range for the rest of this year is between 16,000 and 19,000. But if a strong rally ensues, a move to even 20,400 will be on.

Immediate resistance for the Sensex is at 17,587 where the 50-day moving average is also placed. Inability to move beyond this level will pull the index down to 17,010, 16,920 or 16,852. If the index moves above 17,600, it will face next impediments at 17,781 and 17,946. Short-term view will turn positive only once the index closes above 17,946.

The Nifty (5,290.8) too recorded the intra-week high of 5,342.4 before closing 41 points lower. As explained earlier, the index has immediate resistance in the band between 5,320 and 5,340. Since the 50 DMA is also present in this zone, traders should initiate fresh long positions only if the index goes on to close above this zone. Subsequent targets are 5,385 and 5,445.

But inability to move beyond the above-mentioned zone will mean that the index will decline to 5,183 or 5,136 in the upcoming sessions. Short-term traders can initiate fresh shorts if the index fails to move above 5,320.

The downtrend from the 5,630 peak will aggravate if the index fails to move beyond 5,340. Downward targets in this case are 5,036 and 4,848. Key medium-term support for the index remains at 4,950 and investors need to get worried only if it goes on to record a strong weekly close below this level.

Global Cues

Global benchmarks edged higher as investors focused on quarterly earnings. The impact of the European Central Bank's ultra low-cost financing to the tune of €1 trillion over the past few months appears to be fading with the yields on Italian and Spanish bonds moving higher once again.

Spain's Madrid General Index hit a nine-year low last week. Rest of the European indices, however, recovered after four bad weeks. The DJ Euro STOXX 50 reversed after retracing 50 per cent of its previous uptrend. The action next week needs to be however seen before confirming a reversal.

CBOE volatility index eased slightly from the recent peak of 21 implying that investors in the US were again feeling complacent regarding the ongoing rally. The Dow bounced from the short-term support at 12,700 to close 179 points higher. As indicated last week, next support for the index lies at 12,500 and the short-term trend will turn negative only if the index goes on to close below this level. Reversal from the current levels will take the index higher to 13,986 or 14,198 in the upcoming months. It will be interesting to observe the behaviour of the Dow as it nears its previous life-time high at 14,198.

> lokeshwarri_sk@thehindu.co.in

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