Selling frenzy gripped market on Monday with investors stampeding towards the exit door. The Sensex plummeted to intra-week low of 17,381, while Nifty fell to 5,268. But sanity returned on Tuesday with crude prices cooling down slightly.

Global cues took the backseat as an uneasy calm settled over Europe. Weak GDP growth and contraction in HSBC Markit's PMI added to the air of circumspection. The ONGC's offer for sale muddle and the sharp decline in DLF stock on a report published by Canadian research firm were other interesting sidelights.

Volumes continued to be very strong in the cash segment with NSE cash turnover crossing Rs 15,000 crore in two sessions. Derivative turnover was, however, tepid. Derivative open interest addition is also slow and currently stands at Rs 116,000 crore.

The market has much to look forward to next week as the Assembly poll results will be out on Tuesday. Discussions about the upcoming monetary policy and the Union Budget will also reach a crescendo.

With major market-defining events on the anvil, it is no wonder that the Indian market decoupled with other Asian markets last week. Many of the Asian indices such as KLSE Composite, Philippines Composite, Taiwan Weighted Index and Thailand's SET recorded strong up moves last week even as our benchmarks trudged lower.

Oscillators in the daily chart are displaying weakness. But they have not turned overtly negative yet and can still be salvaged. Momentum indicators in the weekly chart have also not altered much. The medium-term trend appears to be on the verge of reversing higher. But the current uptrend needs to progress a little further before this trend reversal can be taken more seriously.

Sensex (17,636.9)

The Sensex declined to a low of 17,381.6 on Monday and spent rest of the week moving between 17,450 and 18,000. The ongoing decline appears to be a correction of the up-move from 15,358 to 18,523.

Since the previous leg of the rally was an extension, this decline can stop at one-third or 38.2 per cent retracement. This gives us downward supports at 17,478 or 17,313. The index moved close to the second support last Monday and is currently attempting to hold above it. The trajectories for the upcoming sessions can be thus:

The index could continue its movement in the band between 17,300 and 18,086. This will retain the negative short-term outlook and make a break below 17,300 likely.

Movement above 18,000 will mean that the index will move on to the recent peak at 18,523. If this level is breached, the medium-term target at 18,826 will then come in to play.

Break of the 17,300 level will mean that the index will decline to 16,858 or even 16,567.

We retain our view that the index could move in the band between 17,300 and 18,500 in the run-up to the budget. The medium-term trend continues to be positive. But the speedy run-up since beginning of January has already helped the Sensex retrace more than half the decline since 21,108 peak. Investors, therefore, need to tread cautiously.

But what if the Finance Minister manages to give a pleasant surprise to the market? In this scenario, the index can spike higher to 19,393. Upward target in case of a euphoric reaction to the budget is 20,688. The caveat for achieving these levels is that the Sensex needs to hold above the 17,300 level.

Nifty (5,360)

The Nifty too recorded an intra-week low of 5,268 before moving sideways for the remainder of the week. Immediate supports for the index are at 5,286 and 5,231. Traders can hold their long positions as long as the second support holds. But a breach of the support at 5,231 will drag the Nifty lower to 5,099 or 4,986.

Short-term resistance for the Nifty is at 5,491. Inability to move above this level will mean that the bearish short-term bias continues. Near-term view will turn positive on a move above 5,491, paving the way for a rally to 5,630 again.

Medium-term target on move above 5,630 is 5,947. This level is attainable if the support at 5,230 holds.

Global indices

It was a sedate week for the global markets with most indices closing a notch higher. Twenty five of the 27 leaders of the European Union have signed a pact to maintain better budgetary discipline. Though Czechoslovakia and the UK stayed out, investors seemed content with this move, at least for the present.

CBOE VIX remained in a narrow band between 17 and 19 reflecting the complacent mood among investors. The Dow moved to a new high at 13,055 but closed the week where it started, resulting in a doji in the weekly chart. This implies that the index could be pausing to gather steam to charge ahead. As we have been reiterating, strong move above 13,000 is needed to signal the intent to move towards 14,363 and 16,976 over the medium term. If it reverses lower from these levels, decline to 11,500 or 11,000 will be on the cards.

Nymex Crude reversing lower from the peak of $110.5 was also greeted with relief by markets. But this index needs to close emphatically below $102 to signal the mitigation of short-term risk.

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