Technical Analysis

INDEX OUTLOOK - FII flows boost stocks

LOKESHWARRI S.K. | Updated on March 12, 2018 Published on July 07, 2012



Stock prices floated higher through the week on optimism generated by the Prime Minister taking charge of the country’s finances. Foreign institutional investors revelled at the draft guidelines on GAAR and net purchased $937 million of stocks over the past week. Their net equity purchases so far this year stand at $9.4 billion.

This benign FII stance helped both the Sensex and the Nifty move sideways with a positive bias. There were rumblings from the global market as Spain once again scrambled to find funds to repay debt and US jobs data disappointed. Interest rate cuts by the Chinese Central Bank and the ECB and monetary easing by the Bank of England too failed to impress the global investment fraternity.

The strength in dollar on increase in global risk aversion could cause some hiccups to the ongoing rally. But global funds appear to have turned bullish on emerging Asia again (see global cues below). This coupled with strong FII inflows is positive for Indian equities in the near term.

The turnover in both the cash and derivative segment was subdued. Investors appear to be undecided regarding the direction the stocks. The progress of monsoon, first quarter earnings and industrial production numbers will keep market participants occupied next week.

There is some let-up in the momentum in the daily chart. Rate of change oscillator in the daily chart is displaying negative divergence. But weekly oscillators moving into bullish zone is a good sign. If these oscillators sustain in positive territory, it will denote that a medium-term uptrend will extend further.

If we consider Fibonacci time period targets from the 21,108 peak in the Sensex, mid-May was an important turning point. The index formed double bottom around 16,000 shortly afterwards and is attempting to move up.

Sensex (17,521.1)

It was a relatively sedate week for the Sensex following the thunderous up-move in the previous week. The index closed slightly higher. There is a convergence of the 21-, 50- and 200-day moving averages between 16,500 and 17,000 where the index also formed a congestion for some time before moving higher. This zone will now turn in to a critical support zone.

The Sensex fashioned yet another running correction last week implying that the up move continues to have strength. It can move slightly higher to 17,616 or 17,788 in the week ahead. The 18,000 level will also act as a psychological barrier and thwart rallies. But break beyond this level will take the Sensex to 18,488.

Key medium-term resistance for the index remains at 18,826. Investors should stay wary in the zone between 18,500 and 19,000 as that can be the ceiling for this year.

Short-term support for the Sensex will be at 17,271 and 17,097. The medium-term trend will be threatened only on a close below 16,870.

Nifty (5,316.9)

The Nifty too moved sideways last week but with a positive slant. This positive formation implies that the index can move higher to 5,381 or 5,422 in the sessions ahead. But the presence of short-term resistance around 5,300 means that traders should stay cautious in the initial part of the week.

Reversal below 5,350 will drag the Nifty down to 5,243 or 5,187. Traders can continue to buy in declines as long as the index trades above the first support.

Key medium-term trend deciding level is 5,118. The entire zone between 5,050 and 5,150 will cushion the index over the medium-term.

Global Cues

Most global benchmarks began the week on chirpy note but gave up some gains towards weekend as worries on slowing global economy and Spain’s debt woes resurfaced. CBOE volatility index continued its descent to reach 17 last week. The index moving close to its March low of 13.6 implies that investors have stopped fretting about a correction and are once more looking forward to higher stock prices.

The Dow recorded the intra-week high of 12,961.3 before giving up some gains. The medium-term trend in this index is down since the May peak at 13,339. Inability to move beyond 13,000 signals that the index could head lower to 12,600 or 12,400 in the coming weeks. Strong close above 13,000 is needed to take the index higher to 13,339 and beyond.

Many Asian benchmarks including Jakarta Composite, KLSE Composite, Philippines Composite closed strong last week indicating a revival of foreign investor interest in emerging Asia. Some of these indices even went on to close at new life-time highs.

Published on July 07, 2012
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