It has been among the most horrific starts to a New Year in recent times. While China sent stocks crashing lower in the first week, it was the turn of crude oil to send stock prices reeling in the second week. Many of the major global benchmarks including the Dow, Nasdaq, CAC, DAX and Nikkei are looking quite abject, down around 8 per cent in two weeks. Other benchmarks in emerging markets are sporting double-digit losses

Last week’s decline in the Sensex and the Nifty was not too deep, around 2 per cent. But both the benchmarks have taken a small step below the lows formed last September. This is worrying and unless they manage to claw back this week, there could be more pain.

Crude oil prices will continue to dictate the market sentiment in the coming sessions. The report of the International Atomic Energy Agency (IAEA) is due on Saturday. If the agency decides to lift the sanctions on Iran, crude oil exports from the country will resume, adding to the supply, and putting pressure on prices. With the breach of the $30 mark last week, a psychological support has been shattered. The low formed in October 2003 ($28.2) and May 2003 ($25) are the levels that will now be watched, if the slide continues.

Yuan was however relatively stable last week. The yuan traded in onshore market moved between 6.56 and 6.59 against the dollar as the Chinese government began intervention in the offshore yuan market in a bid to align the offshore and onshore prices.

The Shanghai Composite index too is attempting to stabilise around 2,850. This was the low formed last August and a close below this level will make the medium-term trend very weak. The slump in the Hang Seng is a greater worry as it means that foreign investors are exiting China; a fact corroborated by foreign fund outflows.

It is true that foreign portfolio investors have turned net sellers on Indian bourses, but the selling is not intense enough to cause too much concern. They have pulled out only $500 million so far out of stocks in the first fortnight of 2016. On the other hand, they have ploughed in an equivalent amount in to debt instruments.

Macro data continues to be dodgy with CPI inching higher, WPI continuing to be in the negative and industrial production growth declining sharply in November. The plunge in the rupee along with other emerging market currency is also a factor that can roil Indian equities. Earnings announced so far have been mixed, bringing little cheer to investors.

Nifty 50 (7,437.8)

The Nifty closed the week 163 points lower.

The week ahead:  The Nifty breached the support around 7,500. If we extrapolate the short-term down-move from the October-peak, we get the targets of 7,486 and 7,187.

The index go quite volatile trying to stay afloat above the first support but finally gave up on Thursday. Next support zone that we need to watch is between 7,380 and 7,400.

Resistance will be at 7,604 and 7,638. Inability to move above these levels will pull the index lower in the coming sessions. Further resistances are at 7,700 and 7,767.

A strong close above 7,800 is required to signal that the short-term trend is reversing in the index.

Medium term:  The Nifty has breached the important support at 7,500. But the decline below this level is not too deep yet. Since these are long-term supports, we need to see if the index sustains below this level for a couple of weeks more before throwing in the towel.

That said, the long-term oscillators have turned quite weak. If the third wave from 9,119 peak is currently in motion, this wave has the targets of 7,359 and then 6,756.

Fibonacci retracement of the up-move from December 2011-low gives us an important support at 7,374.

Therefore, the band between 7,300 and 7,370 ought to hold for now. If not, there could be a deep dive.

Sensex (24,455)

The Sensex too moved below the critical medium-term support at 25,000 last week.

The week ahead:  If the week begins on a wobbly note, the index can decline to 23,446 or 23,833. As we have been reiterating, the Sensex has very important medium as well as long-term support at the current level, around 24,500.

There is a possibility of a rebound in the index from current levels.

If it does not happen, then we will have to assume that the C wave from 30,024 peak will get quite severe.

Next target downward from this wave is 22,427. Needless to add, that the small-caps that have been holding strong so far will feel the maximum pain in the next leg of the fall.

Resistances for the Sensex will be at 25,094 and 25,500. Inability to move beyond the first hurdle will mean that there is further decline on the cards.

A strong close above 25,650 is needed to make the short-term view positive.

Global cues

There was blood bath in the stock markets across the globe with most indices closing sharply lower for the second consecutive week.

Many indices are currently testing or have closed slightly below the lows recorded in August 2015. The Dow ended at 15,988, below the weekly close in the last week of August last year.

Next target for the Dow is 15,370. This is also a key medium-term trend decider for the index.

The S&P 500 is also poised at an important support. Fall below current levels can usher in a fall to the level of 1,720.

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