Technical Analysis

Index Outlook: Staring down the barrel

LOKESHWARRI S. K. | Updated on March 12, 2018 Published on August 03, 2013



It was a dismal show by the market last week. The bulls seem to have gone into temporary hibernation as the indices slumped helplessly.

The Sensex fell over 500 points to draw close to the 19,000 mark ‘while the Nifty lost around 200 points.

The second consecutive week of sell-off has brought the indices close to a medium-term reversal. Oscillator studies are pointing in that direction and the frontline indices have also closed below their 200-day moving averages.

But since the market’s trajectory from the beginning of this year has been sideways in a 2,000-point range on the Sensex, the floor of this down-move may not be too far away, which means that investors need to keep their shopping lists ready.

The Reserve Bank of India maintaining status quo in its monetary policy meeting did not cheer market participants since the central bank made it clear that tackling the rupee was the most important issue on its agenda.

If the actions of the central bank over the past few weeks are anything to go by, neither the equity nor the debt market are likely to get any respite in the coming weeks, especially with the rupee once again going past the 61 per dollar level. There were many interesting asides to last week’s trade – Congress agreeing to the formation of Telangana, the NSEL debacle and the dramatic crash in Financial Technologies and MCX stocks, among others. Global markets were quiet with no significant takeaways from the meetings of the Federal Reserve, European Central Bank or the Bank of England. The US jobs report that showed 162,000 jobs were added in July came in below expectations. But investors are glad of any sign of weakness since it means that tapering of the quantitative easing programme will be put off further.

Volumes were brisk in the second part of last week. Open interest on NSE’s derivative segment is only at Rs 1,20,000 crore implying that traders are unsure about the market direction.

Surprisingly, FIIs were net buyers in many of the sessions last week. Oscillators in the daily chart have moved into negative zone following last week’s slide. Both the Sensex and the Nifty closing below their 50 and 200 day moving averages is also a negative.

But since this is a long-term indicator, the down-move needs to be prolonged for the signal to be confirmed. A factor of greater concern is the weekly rate of change oscillator and the weekly relative strength indices moving into bearish zones. This could mean the onset of a medium-term down-trend in the market.

Sensex (19,164)

The Sensex slid lower last week to close near its short-term trend deciding level of 19,200. But since the index closed on a weak note on Friday, continuation of the down-move early next week is likely that can pull the index lower to 18,467 or 18,273.

The gap area between 19,093 and 18,875 that is still open, will lend some support to the index next week.

If the opening is on a positive note on Monday, the Sensex can move higher to 19,580 or 19,871. Close above the second hurdle is needed to make the short-term view positive.

Medium-term trend in the index is sideways in the range of 18,000 to 20,000. Since this follows a rally from the 15,500 level, the long-term trend will be up as long as the index manages to hold above 18,000.

Nifty (5,677.9)

The Nifty closed on a very weak note on Friday, near its intra-week low. It is quite obvious now that the C wave or the third part of the corrective move that commenced at the May peak is currently in motion. This wave has the downward targets of 5,683, 5,566 and then 5,430.

Since the index has already achieved the first target, a pause is possible. But the wave formation indicates that downward momentum is building in the index and it can head lower for the targets mentioned above.

If there is rebound early next week, the index can move up to 5,818 or 5,850. Strong close above 5,850, where the 200-day moving average is placed will signal a reversal in the short-term down-trend.

The medium-term view remains unaltered. The medium-term trend is currently sideways. But since this move follows an uptrend, the long-term outlook for the index will not be under threat as long as the index trades above 5,450.

Global Cues

Global indices were mixed last week with correction setting in for some indices after the rally over the last two months. European indices, however, continued moving ahead with the CAC, DAX and the FTSE closing the week with gains. The Euro STOXX 50 index is close to the medium-term high recorded in May this year.

The VIX declined to the low of 11.98 as investors in the US continued to bet on stock prices moving higher. The Dow witnessed a stellar week closing at yet another record high. The close above 15,500 is a positive for the index. It implies that it can now go on to 15,840 or 16,400 in the near-term. Short-term trend will stay positive as long as the index holds above 15,230.

Gold is retreating from the recent peak at $1,348. Short-term supports for the metal are at $1,280 and then $1,242. Near term view will turn negative only on close below the second support.


Published on August 03, 2013
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