Technical Analysis

Index Outlook: Time for reality check

LOKESHWARRI S. K. | Updated on September 28, 2013 Published on September 28, 2013

iw29_Nifty.eps

iw29_sensex.eps

Indian stocks that had needlessly levitated in the euphoria generated by the change of regime at the Reserve Bank of India recorded were more grounded last week. There was an edge of nervousness among investors, right from the outset of last week, as they seemed to realise that there was limited room for further upward movement in stocks given the bleak economic outlook; set to receive a further setback with the hike in repo rate in the recent monetary policy.

Global markets were also muted with the US investors focused on the next crisis brewing in the US – the debt ceiling that needs to be raised within the next two weeks. The expiry of the September derivative contracts on Thursday dominated trading as traders squaring up their positions kept indices in a tight range.

The holiday-interspersed week ahead kick starts with the current account deficit numbers to be announced on Monday. It will be interesting to see where this number heads given the virtual halt in gold imports and improved export numbers balanced by increase in crude prices. The PMI, auto and cement sales numbers for August will be other data points that will be of interest to investors.

Volumes were not too high last week. FIIs have tightened their purse strings after the gush of money poured in to the Indian market in the first fortnight of September. Their tally of inflows for September, however, remains above $2 billion.

The Sensex and the Nifty declined sharply on Monday and spent the rest of the week moving sideways in a narrow range. Sell signals have emerged in the daily oscillators and the daily rate of change oscillator has declined in to the negative zone implying that the short-term uptrend is under threat.

Weekly oscillators have been ambivalent for a while now, moving sideways in the neutral region. This is in line with the movement in the Sensex that is moving sideways since November 2012.

Sensex (19,727.3)

The short-term trend in the Sensex is under duress. The sideways move observed over the last four sessions lacks strength. But the Sensex has few critical supports in the vicinity at 19,500, 19,392 and 19,290. The presence of the 50 and 200 day moving averages at the last two supports implies that the index could attempt to reverse from these levels.

We would like to see the movement over the next week before drawing a conclusion on the medium-term intention of the Sensex. The moves next week can be as follows: If the index reverses above the support zone between 19,300 and 19,500, it will move up to 20,200 or 20,700 again.

Decline below 19,300 will drag the index lower to 19,100 or 18,720. The short-term trend will reverse lower only on a close below the second support.

Target on a move above 20,700 is 21,330

Coming to the medium-term trend, as discussed last week, there is a possibility that a major peak has already formed at 20,739. But we will need to wait for a close below 18,720 to determine that.

If the index manages to hold above 19,300 over the coming weeks, it will mean that it will attempt to spurt once again to the resistance zone between 20,700 and 21,100.

Nifty (5,833.2)

The Nifty also declined to intra-week low of 5,811 before moving sideways. The short-term trend in the index is down and it can remain under duress over the coming week. If the index begins moving lower next week, immediate targets are 5,765 and then 5,677.

The index has strong supports at 5850, where the 200-day moving average is currently positioned and at 5,712 where the 50-day moving average is placed. The short-term trend will be under threat only if the index closes below 5,712. Subsequent supports are placed at 5,629 and 5,512.

If the index manages to hold above 5,712, it can move higher to 6,020 or 6,142 in the days ahead. Failure to clear 6,020 will be the cue for traders to initiate fresh short positions in the index.

The medium-term trajectory of the index will be apparent only after a couple of weeks more. But as indicated earlier, investors ought to stay cautious since the index is reversing from a key resistance level. We are, however, yet to confirm if a major peak is in place at 6,142.

Global cues

It was a quiet week in the global markets with most indices holding on to their gains. CBOE volatility index climbed to intra-week high of 15.4 as investors in the US turned slightly nervous on continued wrangling over the debt ceiling.

The Dow slipped slightly lower to end the week 192 points lower. The evening star pattern in the weekly candlestick chart implies that the index can continue to move lower in the coming weeks. Short-term supports for the index are at 15,114 and 14,765. Strong close below 14,500 is needed to make the short-term trend negative.

The dollar has been losing ground against the other currencies and the dollar index has declined close to the 80 level. It is to be seen if the index halts at 79. That would be the key medium-term trend deciding level for the index. Reversal above that level would keep the index in the range between 79 and 85 for few more months.

And where does that leave the rupee? It has retraced sharply from its life-time low at 68.8. Immediate resistance for the dollar-rupee pair is around 63, where it is currently halting. Further strength in the currency can make it move higher to 59.2 that is also the medium-term resistance for the currency. Halt in the 59 to 60 zone will result in the currency moving in a range between 59 and 68 for few more months.

>lokeshwarri.sk@thehindu.co.in

Published on September 28, 2013
This article is closed for comments.
Please Email the Editor