Technical Analysis

Index Outlook: A new high in sight

Lokeshwarri SK | Updated on March 02, 2014 Published on March 02, 2014


The benchmark indices are within arm’s reach of life-time highs. But escalating geopolitical tensions can drag them back.

The first two months of 2014 in the Indian equity market were full of sound and fury, signifying nothing, commented upon by us idiots. The Sensex is 50 points lower than where it began the year and the Nifty has lost 27. An investor who did a Rip-Van-Winkle in this period would have missed little.

There is little alteration in the outlook for the market since the beginning of the year. The uncertainty regarding the impending elections is likely to cause more such meaningless gyrations.

Both the Sensex and the Nifty have managed to move beyond key short-term hurdles on the chart, clearing the way for a move towards their former highs again. It is to be seen if the indices are able to move beyond the upper end of their trading range. This should be difficult given the election-related uncertainties. Again if the political situation in Ukraine deteriorates it can impact stock markets in the short term.

Global investors turned wary of emerging markets following the Ukrainian crisis, pulling money out of emerging market funds. The sudden depreciation of Chinese yuan, of almost 1.6 per cent last week, has also made these investors think twice about their EM investments. Turnover in the cash segment of the NSE picked up on Thursday and Friday, implying increase in retail interest as stock prices moved higher.

FIIs continued to nibble on equities while they turned net sellers in debt in some sessions. But net purchases in equity so far this year at just $353 million show that foreign investors, too, are trading with caution.

There is not much by way of market-moving events lined up for this week. The market will react to the disappointing third quarter GDP growth of 4.7 per cent on Monday.

This number increases the probability of the full-year growth target of 4.9 per cent by the CSO being missed. HSBC India’s manufacturing and services PMI numbers and auto sales numbers will be of interest.

Sensex (21,120.1)

The Sensex recorded strong gains to close 419 points higher last week.

The week ahead: The index has breached the key short-term resistance at 20,900. The short-term view has now turned bullish since the index has also closed near the intra-week high. Immediate resistances are at 21,321, 21,409 and 21,483; the peaks formed from November 2013. The zone between 21,300 and 21,500 is a medium as well as a long-term resistance.

We cannot rule out a move to a new high in this leg. But it is possible that the index pauses for a while in the 21,300 to 21,500 band before moving on. The target above 21,500 is 22,095. Short-term supports are at 20,800 and 20,692.

Medium-term view: As we have been reiterating, the medium-term view is sideways in the range of 20,000 and 21,500. The Sensex is now nearing the upper end of this sideways range. But if the Sensex maintains its momentum this week, it will mean that the corrective move that began from December 2013 has ended at 19,963. The next medium-term target would then be 22,456. Key medium-term support stays at 19,000.

Nifty (6,276.9)

The Nifty, too, made rapid strides to close 121 points higher last week.

The week ahead: The index shattered the resistance at 6,200 effortlessly last week. It has also breached the 50-day moving average and closed the downward gap formed on January 27. The immediate targets for the index are 6,356 and 6,415.

Since this is the life-time high for the index and also the upper end of its medium-term range, we could see some dithering in the band between 6,350 and 6,400.

If the index continues in an indomitable mood, the next short-term target is 6,456. Short-term supports are placed at 6,183 and 6,150. Traders can buy during declines as long as 6,150 holds.

Medium-term trend: The medium-term trend on the Nifty remains sideways.

Since the index is nearing the upper end of its range, optimism is likely to rule high. Minimum target on breach of this level will be 6,733.

On the other hand, reversal from the 6,400-level will mean that the index will retreat to 6,120 or 5,930 in the coming weeks.

Global cues

Global markets remained unfazed by the ongoing skirmish at Ukraine. US indices moved to record highs despite the US GDP growth for the fourth quarter growing at a slower-than-expected 2.4 per cent.

The projection of Euro Zone growth at 1 per cent for this year also does not seem to have fazed investors. According to EPFR, developed market funds continued to receive inflows while investors continued to pull money out of global emerging market funds.

European indices put up a strong show with the DJ Euro STOXX 50 nearing its resistance at 3,174. The Dow broke out of the key resistance at 16,120 to hit the intra-week high of 16,398.

It is now likely that the index will reach its previous high of 16,588. A break above that will give the next target of 17,209.

Published on March 02, 2014
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