Technical Analysis

Index outlook - Pausing at 18,000 threshold

Lokeshwarri S K | Updated on March 12, 2018 Published on August 25, 2012



Stocks continued their upward march last week. The Sensex went up to the 18,000 threshold and the Nifty went up to 5,450 on Thursday before retracing slightly. The weekly charts of both the indices are looking promising with four consecutive white candles, denoting four positive weekly closes.

The holiday at the beginning of last week made the week begin on a sluggish note. Market participants focused on global cues such as expectation of another round of quantitative easing from the US to push stock prices higher. Foreign institutional investors continued to support stocks by remaining net buyers.

Their tally of net purchases for August has now surpassed $1.2 billion. Indian equities have received $11.5 billion of FII flow so far this year. Turnover in capital market segment was lackadaisical last week while derivative action picked up in the second half of the week.

Put call ratio in index options rising towards 1.3 denotes that market is getting a little over-heated and traders are betting on a correction. Open interest in the derivative segment has crossed Rs 1,50,000 crore reflecting growing traders’ interest.

The action next week could be livelier as the August derivative contracts roll into expiry. The GDP growth for the June quarter and the final phase of the South-West monsoon will be other points of interest in the upcoming sessions.

Daily oscillators in the Sensex and the Nifty charts declined slightly albeit still in the bullish zone. There is also a negative divergence in the daily chart denoting loss of momentum and the possibility of a minor short-term pull-back. Weekly oscillators are just emerging into the positive zone denoting that the negative medium-term view could mitigate.

Sensex (17,783.2)

The Sensex recorded the peak at 17,972 before declining on Friday. The two doji formations in the daily chart on Thursday and Friday denote that the index could decline a little in the early part of the week. The short-term trend in the index, however, continues to be up.

Immediate supports for the index are at 17,464 and 17,146. Short-term traders can buy in declines as long as the index trades above the first support. If corrections halt at this level, it will imply that the index can move on to 18,310, 18,523 or 18,834 in the months ahead. The medium-term view for the index is also positive. As we have been reiterating, the third leg of the correction from 15,135 low is currently unfolding. This leg has the targets of 17,842 and 19,136. Since the index is nearing the first target, investors need to tread cautiously. The zone around 18,000 is also a psychological resistance. We will retain a positive medium-term view as long as the index trades above 17,150.

Nifty (5,386.7)

The Nifty hit the intra-week high at 5,448 before declining to 5,371 on Friday. The short-term trend in the index is currently up. But there is a slight let-up in the momentum. The index could retract slightly to 5,300 in the week ahead. Short-term traders can hold their long positions as long as the index trades above this level.

Subsequent supports are at 5,241 and 5,190. If the index manages to break above 5,450, it can rally on to 5,544 or 5,630.

Medium-term trend in the Nifty is also positive. The index needs to decline below 5,200 to reverse this view. The medium-term targets of this up-move are 5,450 and 5,870. Since the index is close to the first medium-term target, some caution is required at this juncture.

Global cues

It was a sedate week for the global markets last week with most benchmarks holding on to their recent gains. Investors, however, turned slightly nervous at higher levels and this is reflected in the CBOE volatility index rising from a multi-year low to end the week above 15. The mood over the short as well as the medium-term stays bullish in the US market and the VIX needs to close above 27 to signal a change in the short-term sentiment.

The Dow experienced a bout of vertigo as it neared the previous medium-term peak at 13,339. Short-term supports for the index are at 12,800 and 12,500. It is however possible that the index reverses lower from this level to decline all the way down to 12,000. That will imply that the index can spend few more months in the range between 12,000 and 13,300 before breaking out. Such a move will retain the positive long-term outlook and the possibility of a break-out to 13,848 or 14,198 over the months ahead.

Some Asian benchmarks such as Jakarta Composite, KLSE Composite, Taiwan Weighted Index and Thailand’s SET gained ground along with the Indian benchmarks as interest appears to be reviving in emerging Asia. KLSE Composite went on to close at a new life-time high.

Gold recorded a sharp up-move last week, gaining 3 per cent. It has now moved beyond the downward sloping medium-term trend-line at $1,627. The real test for the commodity will be at the resistance at $1,675. Inability to move above this level will mean that the metal can once again decline towards $1,520.

Move above $1,675 will take gold further to $1,720 or $1,770.


Published on August 25, 2012
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