Stocks trudged sideways and closed slightly lower last week. Both investors and traders appear to be perched on the fence, waiting to see what Finance Minister P Chidambaram dishes out in the vote-on-account, besides Thiruvalluvar’s quotes, of course. Since the possibility of the Finance Minister springing a negative surprise is high, it is safer to be out of the ring at this juncture.

Even as the stock market turned insipid, politicians spiced up the week for investors by putting up a lively sideshow, involving Members of Parliament going on a rampage with pepper sprays and Arvind Kejriwal acting like a sulking child making excuses to avoid schoolwork.

If the ruling party displays similar desperation in its interim budget, the ongoing rally in the market can be at peril. Thankfully, global markets are looking sprightly again, having shaken off the fears of an emerging market collapse, at least for now.

Economic news was mixed. While industrial production for December contracted 0.6 per cent, the easing of consumer and wholesale price inflation was a cause for some relief. Core inflation growth, however, continued to increase in a stubborn manner to 3.05 per cent in January, compared to 2.75 per cent in December. Funds raised through spectrum auction will come in handy to fix the fiscal deficit target. Foreign institutional investors, too, appear to be in the wait-and-watch mood. These investors have moderated their pull-out from equity and were seen buying in some sessions. The good news is that they have turned buyers in debt once again.

Oscillators in the daily chart are continuing to move in the negative zone implying that the short-term trend remains under a cloud. Weekly momentum indicators are hovering in the neutral zone on the verge of moving into negative zone. This reflects growing risk of the medium-term trend reversing lower. Negative divergence in the monthly oscillator chart also denotes lack of strength in the ongoing uptrend.

Sensex (20,366.8)

The Sensex could not get past the resistance given in this column last week at 20,516.6 and reversed lower mid-week. The near-Doji formation in the weekly chart implies indecision and the possibility of a break in either direction. And that ties up well with the uncertainty surrounding Monday’s event.

The week ahead: The Sensex reversed higher on Friday. The index can now move to the resistance at 20,516 again. Inability to move beyond this level will keep the index in the band between 19,960 and 20,516. The 200-day moving average at 20,045 will also be keenly watched.

If Chidambaram manages to please the market, the Sensex can rise to 20,682 or 20,858 in the week. We stay with the view that a rally beyond 20,858 appears unlikely now. Presence of the 50-DMA at that level will also act as an impediment.

The support that investors need to watch carefully next week is at 20,000. A close below this level will affect sentiments negatively. Subsequent targets are 19,622 and 19,480.

Medium-term view : The current medium -term range is between 20,000 and 21,500. The outlook will stay positive as long as the lower end of this range holds. But break of the 20,000 level will mean that the index is heading to 19,000 or lower. As far as the long-term count is concerned, we are currently holding the view that the market is in a long-term corrective move since November 2010. This move is making Sensex vacillate between 15,000 and 21,000. We are yet to confirm if the second leg of this correction — that commenced from the June 2012 low — is complete or not. A decline below 19,000 will mean that a downward moving wave of the long-term correction has commenced.

Nifty (6,048.3)

The Nifty followed our script last week, reversing from the short-term resistance at 6,086 to move lower towards our first target. This week will not be as easy to predict as the last.

The week ahead: Optimism can continue on Monday morning taking the Nifty higher to 6,086 or 6,106. The inability to move past this level will pull the index down to the 200-DMA level at 5,982 or 5,933 again.

A dull interim budget can keep the index in the band between 5933 and 6106. But if Chidambaram springs any unpleasant surprise, the index can head down to 5,845 or 5,766. Conversely, if he manages to make market participants euphoric, the Nifty can soar to 6,144 or 6,200. We do not see a rally above 6,200 just yet. But if it happens, the next target would be 6,355.

Medium-term trend: Our medium-term outlook for the Nifty remains unchanged. The index is oscillating in the band between 5,900 and 6,400. Continued movement in this band would be positive for the long-term view. Key medium-term support that investors need to watch is at 5,700.

Global cues

It was a more benign week in the global equity markets with many benchmarks closing on a strong note. The CBOE volatility index declined further to close the week at 13.5 reflecting optimism.

It was a strong week for the Dow Jones Industrial Average with the index closing 360 points higher. The index has reached the short-term resistance at 16,100. It is to be seen if the index is able to move beyond this level. The short-term trend will reverse higher if the index is able to achieve this level. The next resistance will be the recent peak at 16,588. The medium-term trend in the Dow will be threatened only on a strong close below 15,000.

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