Technical Analysis

Index Outlook: A gripping December ahead

Lokeshwarri S K | Updated on January 19, 2018

BL30INDEX

Index chart

With the Fed set to hike rate, currency and commodity markets are again turning volatile



Financial markets were disappointed when Janet Yellen decided to prolong the suspense and do nothing in the October meeting. Will it be different in December? Well, no one really knows. But things are getting quite complicated already.

We have the RBI’s monetary policy meeting on Tuesday. Raghuram Rajan, thankfully, does not have to do much besides wait and watch; having earned himself a temporary reprieve by giving a larger-than-expected rate cut in the last meeting. European Central Bank is not in such a comfortable position and there are expectations that Draghi might cut rates or increase the quantum of stimulus in the meeting scheduled this week on Thursday.

This diverging action of central bankers — US and Eurozone — is applying pressure on the euro that is plumbing new lows; currently trading at 1.059 against the dollar.

The euro is down 3 per cent against the dollar over the last month and down 22 per cent since last May.

The dollar is gaining from the euro’s troubles and the dollar index finally moved above the 100 level on Friday. This is obviously not good for gold (at multi-year lows at $1,058), crude (moving towards the recent low at $37.7), rest of the commodity pact, emerging market equity and, of course, the rupee (moving towards the 2013-low).

All these factors together set the stage for not just an exciting week, but a pretty busy month for financial markets. Wonder how global fund managers will juggle their Christmas break amidst the ongoing bedlam?

Chinese stock market, which was in a state of uneasy calm since the August rout, too turned turbulent on Friday. The Shanghai Composite index declined over 5 per cent on reports that the Chinese regulator is investigating various market intermediaries for their involvement in the summer decline in stock prices.

The repercussion of this volatility is felt in the foreign portfolio flows. These investors have pulled out ₹6,616 crore out of equity market so far in November. The pull-out from debt market is around half that amount.

With the rupee weakening, the pull-out could accelerate, applying pressure on stock prices.

The September quarter GDP number will be of interest to see how the investment growth in the economy has been. The ongoing Parliamentary session will be another influence on the Indian stock market next week.

Nifty 50 (7,942.7)

The truncated week that has just gone by made the Nifty rise to the high of 7,959. While squaring up of short positions ahead of the F&O expiry supported prices in the early part of the week, hopes of the GST Bill getting passed in Parliament pushed the Nifty higher on Friday.

Both the daily as well as the weekly oscillators are signalling a buy. The long-term oscillators on the monthly chart are however still dipping.

The week ahead: The Nifty rose to the short-term resistance at 7,954 and is currently poised there. There is another resistance just above at 8,000. The 50-day simple moving average is positioned here.

As mentioned last week, the inability to move above 8,000 will be a signal that the Nifty will move lower to 7,815, 7,714 or 7,678 in the coming sessions. Fresh shorts can therefore be initiated if there is a reversal from current levels.

Target on a move above 8,000 is 8,102. We need a close above 8,102 to signal a reversal in the short-term down-trend.

Medium-term trend: There is no alteration in the medium term trend. Inability to move beyond 8,100 will mean that the Nifty can decline to 7,539 or 7,363.

This down-move can stabilise at these levels and long-term investors can look for bargain buys at these levels.

There is a need to worry only if the index goes on to decline below 7,363.

Sensex (26,128.2)

The Sensex too managed to move higher and closed with 260-points gain last week.

The week ahead: The rally last week is far from convincing. The index was unable to get to the resistance zone between 26,300 and 26,350.

Traders need to stay circumspect as long as the index trades below this zone.

A reversal from current levels can drag it lower to 25,704, 25,453 and 25,287.

Short-term resistance above 26,350 is at 26,538 and then at 26,796.

Bank Nifty (17,370.9)

The Bank Nifty surged strongly last week, partly due to short-covering, helping the index gain 334 points.

Traders however need to stay cautious as long as the index trades below the resistance at 17,500. This level needs to be surpassed to take the index towards the next target of 18,029.

Supports for the week are at 16,910 and 16,587.

Global cues

Risk aversion has gripped commodity-dependent countries once again with metals such as copper, nickel and gold plumbing new lows and crude threatening to follow suit.

Indices of countries such as Brazil, Argentina and Russia received deep cuts in last week’s trade. European benchmarks such as the CAC and the DAX however were strong on a weakening euro.

The Dow was quite strong last week, fluctuating in a very narrow band between 17,650 and 17,900.

The US investors appear quite confident about the prospects of their equity market and this is reflected in the CBOE VIX that moved lower. The S&P 500 is also poised quite close to its all-time high at 2,135.

Published on November 28, 2015

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