Technical Analysis

Index Outlook: Ready to take wing

LOKESHWARRI S. K. | Updated on March 09, 2018 Published on May 04, 2013



Even as summer is sending temperatures soaring across the country, stock prices are showing no signs of wilting. It was an unusually perky show by the stock market last week driven by expectation of a market-friendly monetary policy. The Government’s accommodative stance towards foreign investors also buoyed market mood.

Both the Sensex and the Nifty moved beyond their short-term obstacles to close the week with 1.5 and 1.2 per cent gains respectively.

Removal of the contentious clause regarding tax residency certificates being ‘necessary but not sufficient’ from the Finance Bill seems to have greatly pleased foreign investors. Proposal to reduce withholding tax on interest paid to foreign investors was also received well. According to EPFR Global, India dedicated funds received the highest weekly inflow in the last three months.

Global markets were upbeat with European stocks rejoicing in the policy rate cut of the European Central Bank and US indices scaling new highs.

The Dow moved briefly above the 15,000 mark on Friday to end the week almost 2 per cent higher. If the index manages a strong close above this index next week, the ongoing rally will get a fresh breath of life as investors perched on the fence jump in.

Volumes were moderate in both the cash and derivative segment last week. Open interest in the derivative segment has moved up to Rs 1,30,000 crore as stock prices moved higher, showing increased trading interest.

Oscillators in the daily chart are still in an uptrend implying that the short-term trend stays positive. Daily relative strength index is declining slightly but that is not worrisome. The movement in the weekly indicators is more interesting. Weekly price rate of change indicator is poised at the zero line on the verge of crossing over into the bullish zone. Weekly rate of change oscillator is also in the neutral zone implying that the medium term view could be on the verge of turning positive.

Sensex (19,575.6)

Often, the month of May proves traumatic for equity investors giving rise to the adage, “sell in May and go away”. But the month has proved quite benign this far for equity investors with the Sensex rising above the 19,500 hurdle.

That said the index is tantalisingly hovering just above this resistance instead of making a clean break. Short-term investors can watch out for the support around 19,160. Reversal above this level can take the index to 20,073 or 20,192 in the upcoming weeks.

The short-term view will turn negative only if the index goes on to close below 18,750.

As far as the medium-term view is concerned, the index breaking above 19,500 is a positive. We now need to watch out for the resistance around 20,200. Inability to move beyond this level will result in the index moving in the band between 18,000 and 20,000 for the rest of this year.

But break above 20,200 will give the next medium term target at 22,600.

The Nifty (5,944) too broke above the key short-term resistance at 5,862, but is pausing around the psychologically critical 6,000 mark. Short-term investors can hold their long positions as long as the index trades above 5,800. Declines to this level can also provide a buying opportunity for the short-term.

Next short-term target for the index is 6,112. If this level is breached, move to 6,300 is possible. The short-term trend will however turn negative on close below 5,685.

For the medium-term, the trend appears to be on the verge of reversing higher. We now need to see if the index is able to surpass the 6,100 level. Inability to move beyond will result in sideways move between 5,500 and 6,100 for few more months. Sharp break above 6,100 will mean a new high this calendar.

Global cues

It was a steady week for global stocks with most benchmarks closing with slight gains. The European Central Bank lowering policy rate to 0.5 per cent sent stocks in Europe sharply higher. CBOE volatility index moved in the band between 13 and 16 implying that investors in the US continue to be sanguine.

Strong US jobs data released on Friday helped the US markets close with gains for the week with Dow and S&P 500 scaling fresh life-time highs. Short-term supports that need to be watched now are at 14,500 and 14,250. As long as these levels hold, the Dow will be on course to our medium-term targets at 15,126 and 15,548.

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Published on May 04, 2013
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