Technical Analysis

Index outlook: And the party goes on

Lokeshwarri SK | Updated on March 12, 2018 Published on August 24, 2014

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The short-term trend remains strong. But derivative expiry can usher in some volatility

The revellers in the stock market party are having so much fun that they want it to go on and on. Any positive news, such as a drop in crude oil prices or the possibility of a sovereign rating revision, is greeted with a fresh burst of revelry.

Negative news of increase in inflation or drop in industrial output or geo-political tension is drowned in the cacophony of celebration.

And this is not happening in India alone. The S&P 500 and the Dow are at record highs despite analysts worrying about S&P valuations hitting the roof and the Federal Reserve Chairperson’s warning that the US economy is still struggling.

But those with many years of ticker-watching behind them will know that there are extended periods when stock markets act with little rationality. It is best to ride the rally in such phases while keeping a sharp look-out for a reversal so that you can jump out in time.

Foreign portfolio investors have been nibbling at Indian equity, net purchasing meagre quantities last week. Volumes in the derivative segment are rising. Open interest in NSE’s derivative segment has already risen to Rs 2, 22, 858 crore. Put-call ratio of one implies that both the bull and bear camps are equally divided at this point.

This can make the indices swing both ways ahead of the futures and options expiry scheduled for the coming Thursday.

The truncated week, will, however make market participants unwilling to take large bets, as they would prefer enjoying their extended weekend in peace.

Daily oscillators are hovering in the neutral zone while weekly oscillators are recovering after a dip. This means that the sideways move witnessed since mid-June could have been a stealthy correction that did not do any damage to prices but only made the Sensex move sideways between 25,000 and 26,500.

Monthly oscillators imply that the long-term trend stays robust and is trending higher.

Sensex (26,419.55)

The Sensex rallied strongly on Monday but lost its way thereafter, closing the week with 316 points gain.

The week ahead: The short-term trend is up. But the F&O expiry can usher in some volatility.

Hold on to your long positions with stop loss at 26,020. As long as corrections halt above this level, there is possibility of the index rising higher to 26,701 or 26,808.

Short-term trend will turn lower on close below 25,670. Next target will be 25,232.

Medium-term trend: As mentioned last week, a running correction is currently unfolding. It needs to be seen if the index is able to move beyond 26,837 in the coming sessions. Reversal from the zone between 26,830 and 27,000 will mean that the index will decline towards 25,000 again.

But a strong move beyond 26,800 will take the index to 27,600 – that is yet another key medium term hurdle.

Nifty (7,913.2)

The Nifty too held on the gain made in the early part of the week to close 121 points higher.

The week ahead: Traders can hold their long positions with the stop loss at 7,790.

If the index manages to hold above this level, it will keep open the room for a move higher to 7,953, 7,982 or 8,030 in the coming sessions.

The zone around 8,000 will be an important psychological resistance for the index.

The short-term trend will however reverse lower only on a close below 7,670. Next target for the index will be at 7,540.

Medium-term trend: We retain a positive view for the Nifty over the medium-term. But you need to watch your step here as the Nifty is close to a key medium-term resistance zone. If the index manages to get past 8,000, next target will be 8,110 and 8,208.

Inability to move past 8,000 will mean that the index will pull back towards 7,500.

Global cues

Global markets continued their heady run last week. Most indices closed the week with strong gains. Improvement in investor sentiment was reflected in the CBOE volatility index moving lower to end the week at 11.4.

This index moving closer to 10 implies that investors are getting gung-ho about the prospects of the stock markets. The DJ Euro STOXX 50 recorded second positive weekly close.

The Dow surged sharply higher to close with 338 points gain. The index has also managed to close above the 17,000 level. Next resistance is the recent peak at 17,133.

But the index might be able to close above this level with the momentum generated last week. Next target for the index is 17,441 and then 18,126.

Published on August 24, 2014
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