Technical Analysis

INDEX OUTLOOK: Perched on 16,000 hillock

LOKESHWARRI S. K. | Updated on March 12, 2018 Published on January 14, 2012



The Sensex shook off its lethargy to dash above the 16,000 mark last Tuesday. But this burst of energy could not sustain and the benchmarks, the Sensex and the Nifty, spent rest of the week meandering sideways. Encouraging reading from macro data such as food inflation, industrial production, excise duty collection and so on helped maintain a cheerful mood in market. Infosys' glum guidance did not affect the sentiment much, though the stock took a battering.

The optimism that is generally seen in the beginning of every year was once more on display last week. Stocks that were languishing in wilderness over the past year saw brisk action. This revival in buying interest in broader market is reflected in the 7 per cent gain in the BSE Smallcap index and 5 per cent gain in BSE Midcap index.

Volumes in both cash and derivative segment picked up in the later part of the week. Foreign institutional investors were net buyers last week. They made net purchases of $500 million of stocks in the first fortnight of January.

With the corporate biggies lining up to unveil their third quarter earnings, investors will have plenty to mull on. Headline inflation numbers to be announced next week will also influence trade.

The downgrade of nine European nations by Standard and Poor on Friday is the joker in the pack. Stock markets have not had a chance to react to this news yet. France and Austria losing their AAA rating will not go down too well with market participants though the fact that markets were speculating about this event over the last few weeks can stem the downside. Any knee-jerk reaction akin to that witnessed after the US debt downgrade will provide a buying opportunity for investors.

Oscillators in the daily chart have moved in to bullish zone. Despite positive divergence in the weekly relative strength index, it is moving sideways over the last three months. Two positive closes in the New Year is also something to feel good about.

Sensex (16,154.6)

The Sensex has done well to close the week above the psychologically significant 16,000 level. Hitting a higher peak after a higher trough will hearten the trend following brigade.

But the index was unable to get past the resistance at 16,300 that we had indicated in our last column. Vacillation around this level over the last two sessions means that the index is not yet out of the woods from a short-term perspective. It could pull back to 15,780 or 15,533 in the upcoming sessions.

Short-term investors can buy in to the decline as long as the first support holds. Decline below the second support will open the flood gates of selling. It will mean that the medium-term trend that is still brooding, has resumed. Downward targets in this scenario are 15,101 and 14,388.

What if the index moves up in the early part of the week? In that case, the upper targets would be 16,521 and 16,838. Investors need to stay wary of the zone between 16,850 and 17,000. Once this threshold is crossed, the near-term outlook will turn rosier.

We stay with the view that the Sensex needs to move above the key hurdle between 17,500 and 18,000 to make this trend positive. As long as this zone is not surpassed, the index will whipsaw in the zone between 15,000 and 18,000.

Nifty (4,866)

The Nifty moved to our first short-term target at 4,881 and then moved sideways. But as indicated last week, this is a key short-term resistance. Inability to surpass this implies that the index could give up some gains in the near term and decline to 4,758 or 4,671.

Traders can hold their long positions or buy in to declines only as long as the first support holds.

Decline below the second support will mean that the medium-term down trend has resumed. Downward targets in this case would be 4,546 and 4,329.

The second scenario that can play out is that the index carries on merrily with the current rally. In that case, next targets are 4,959 and 5,023. The zone between 5,000 and 5,100 will be the next obstacle for the bulls.

The medium-term trend decider is the zone between 5,200 and 5,400.

Global indices

Most global indices moved slightly higher last week. But the debt downgrade of some European Nations made stocks give up some gains late Friday.

CBOE volatility index touched a six-month low of 20 mid-week but it ended the week slightly higher at 20.9.

As we have been reiterating, if the index trades below 27, it will mean that the mood among traders is sanguine. Decline below 20 will mean that markets have entered bull market territory.

The Dow moved to a high of 12,514 before moving sideways. Short-term support at 12,000 remains intact. It is therefore possible that the index moves on to 12,876 or 13,132 in the upcoming weeks.

Most Asian markets recorded a strong up-move last week. The Philippines Composite Index went on to record a new all-time high. The Shanghai Composite that was threatening to go in to a tailspin also recovered to close in the green after nine weeks of down closes.

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Published on January 14, 2012
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