Technical Analysis

Index outlook: Sailing into rough weather

Lokeshwarri SK  | Updated on March 12, 2018 Published on February 23, 2014

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It was one-step-forward and one-step-back kind of movement in stock market last week. But both the Sensex and the Nifty have managed to eke out gains.

While the rally can continue in the upcoming sessions, there is need for caution since the indices have now crawled close to an important short-term hurdle. The truncated week, with the market holiday on Thursday on account of Maha Shivratri, can witness some turbulence. It does not help that we have the derivative expiry scheduled on Wednesday. Critical levels to watch now are at 20,900 in the Sensex and 6,200 in the Nifty.

It is not surprising that the stock market did not even blink after the interim budget presentation last Monday since there was nothing in it for investors. The financial market reforms announced by the Finance Minister appeared to be a hastily compiled list jotted after a brief call to the RBI and the SEBI. Investors were however relieved that the fiscal deficit for the current year was lower than expected.

FIIs turned net buyers as stock prices moved higher in the later part of the week. But according to EPFR global, India and Russia equity funds are yet to record net inflows this year. This implies that while we could be getting some funds through the emerging market route, FII sentiment towards Indian equity stays cautious.

For the week ahead, the simmering tension in Ukraine will be closely watched. With Russia back-tracking, it is up to the IMF to bail the country’s $13 billion of debt. Third quarter GDP numbers of India will also be of interest.

But it is going to be politics that is going to dominate the mind-space in the run-up to the elections.

Sensex (20,700.7)

The Sensex recorded the intra-week peak of 20,750 on Wednesday and moved in a narrow range thereafter.

The week ahead: The index moved above the short-term resistance at 20,516, but it is pausing below the next hurdle at 20,858. The 50-day moving average positioned at 20,775 will also be an important hurdle to watch out for in the days ahead.

If we extrapolate the move that began from the 19,963 low, we get the next targets at 20,913 and then 21,044. It also needs to be remembered that the floor of the gap formed on January 27 is at 20,899.

In other words, there is an important short-term hurdle around 20,900. Investors with short-term perspective need to watch their steps as long as this level is not crossed.

Short-term supports are at 20,450 and 20,270. Short-term view will turn negative only on close below the second support.

Medium-term view: The medium –term view is sideways in the range of 20,000 and 21,500. If the Sensex breaks past 20,900 this week, it will try to get near the upper end of the medium-term range at 21,500.

However, the uncertainty surrounding the impending elections will cause another bout of volatility as the index nears its former lifetime peak. This will set the stage for continued movement in the band of 20,ooo and 21,500 prior to the elections. We will retain a positive medium-term view as long as the Sensex trades above 19,000. This will keep open the possibility of a move beyond 22,000; perhaps in the second half of this year.

Nifty (6,155.4)

The Nifty closed near its intra-week high on Friday. The morning star pattern in the weekly candlestick chart implies that the uptrend could extend further.

The week ahead: Nifty moved past the first target indicated in this column last week, but it has not yet moved past the critical hurdle at 6,200. This level is a potential minefield for various reasons.

One, the 50-day moving average is positioned close, at 6,181. Two, floor of the gap formed on January 27, is at 6,188 and three, 61.8 per cent retracement of the prior downtrend is at 6,200.

Short-term investors should therefore tread cautiously as long as the index trades below this level. Fresh long positions can be initiated once the index gets past this level. Subsequent targets are 6223, 6263 and 6355. Short-term supports for the index are 6076 and 6021. Short-term view will turn negative only if the index closes below the second support.

Medium-term trend: The medium-term view stays sideways. But if the index manages to move past 6200, it will take it to the ceiling of the current medium-term rage at 6,400. Reversal from here will mean that the index will keep vacillating in the range between 5,900 and 6,400 until the Lok Sabha polls.

Global cues

Most global indices moved sideways and closed with minor gains last week.

US indices such as the Dow and the S&P 500 closed in the negative for the week. The Dow hit the intra-week high of 16,225.7 before giving way.

The index faces short-term resistance at around 16,120. Failure to record a strong move beyond this level signals the possibility of decline to 15,889 or 15,682 in the weeks ahead. Conversely, if the index breaks higher from this level, it can move on to 16,520 or 16,588 in the coming weeks.

Published on February 23, 2014
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