Technical Analysis

Markets prove resilient

LOKESHWARRI S. K. | Updated on March 12, 2018

Short-covering by bears ahead of the derivative expiry scheduled next Thursday played an important part in taking prices higher last week.



Even as pandemonium prevailed in commodity markets and other global equity markets witnessed a sell-off, Indian equity markets put up a strong show. The Sensex and the Nifty gained around 4 per cent last week. The rupee appreciation adding one per cent to the gains make ours the best performing equity market globally in dollar terms.

The bulls could yank stock prices back from the brink early last week, thanks to the announcement that the wholesale price index for the month of March grew at a slow 5.96 per cent over the previous year. This raised hope of interest rate cut in the upcoming monetary policy meet.

The crash in gold and crude prices was also viewed as a positive by equity investors since it will help to reduce the country’s current account deficit. This helped the rupee gain 1 per cent. Measures announced by the Government to boost exports against the backdrop of exports declining by 1.76 per cent in March over the corresponding period the previous year was also welcomed by investors.

Global cues were, however, not too benign with earnings of companies in the US coming in lower than expected and China growing at just 7.7 per cent in the first quarter. Short-covering by bears ahead of the derivative expiry scheduled next Thursday too played an important part in taking prices higher last week. With markets closed next Wednesday on account of Mahavir Jayanti, prices could stay volatile in the next three sessions.

The giant bullish engulfing candlestick pattern in the weekly chart is a positive for the sustenance of the reversal witnessed this week. Oscillators in the daily chart are beginning to move higher in to the bullish zone. A tiny upturn is visible in weekly oscillators too. It is, however, too soon to presume a reversal in the medium-term trend.

Sensex (19,016.4)

Sensex reversed from the intra-week low of 18,144 to close 773 points higher. As explained earlier, minor counts of the down-move from 20,203 peak were converging around 18,300 making it a likely point where the first wave can halt.

But it is not yet certain if the correction that began at 20,203 is complete or if it will further subdivide. The guideposts for the upcoming weeks are as follows: If the rally from 18,144 reverses from the 19,000 level, it will mean that the medium-term trend remains down and the index can decline to 17,786 or 17,000 in the weeks ahead.

If the Sensex manages to get to 19,426 or 19,500 and reverses from there, it will mean that the index will remain in a range between 19,500 and 18,000 for few weeks before the next wave unfolds.

The short-term view will turn positive only on a strong close above 19,500. That will imply that the index is heading for 21,000 level this calendar.

Short-term targets for the index are 19,190 and 20,214. Supports that can cushion the index next week are at 18,700 and 18,500.

Nifty (5,783.1)

The Nifty reversed from the intra-week low of 5,681 to close 94 points higher. The movement of the index over the medium-term can be guided by these levels:

The Nifty has key short-term resistance at 5,862. Reversal below this level will mean that the index will withdraw to 5,408 or 5,170 in the coming months.

But a move above 5,862 will mean that the index will move on to 6,112 and then to 6,300 in the medium-term.

The movement of the Nifty next week will give us clues about its medium-term trajectory.

For the short-term, Nifty faces key resistance at 5,866. Traders can hold their long positions only as long as the index trades above 5,670. Decline below 5,600 will imply that the short-term trend has weakened again.

Global cues

Global equity markets lost some ground last week and closed in the red on fears of a slowdown in economic growth in China and Federal Reserve stopping its monthly injection of liquidity into the US economy.

The Dow recorded its first emphatic negative weekly close this calendar, closing 317 points lower. But this move has not really dented the bullish fervour in the short-term. We retain the short-term trend deciding level at 14,000 and the medium-term targets at 15,400 and 15,700 for this index.

It was not the action in equity market but the crash in bullion prices that hogged investor attention last week. Gold has gone completely against our expectation, crashing below the $1,400 an ounce level indicated in our last column. Gold fell 12 per cent last week to hit the low of $1,321.

In e-wave terms, we were going along with the count that the fourth wave from the 2001 trough was in motion with a fifth wave higher impending that could take the metal to $2,000. But the crash last week signals the end of the move from 2001 at the September 2011 peak of $1,920.

If we consider Fibonacci retracement of this move, we get 38.2 per cent retracement at $1,284. One-third fall from the $1,920 peak gives us the target at $1,286. Since the yellow metal stopped just $40 short of this support, we can look forward to a halt at this region.

Extrapolation of the down-move that began at $1,920 gives us the targets at $1,402, $1,251 and then $1,159. We will need to see the action in gold over the next two weeks to decide how this decline is shaping.

Silver too lost 10 per cent to close at $23.1 last week. But the decline is sharper in silver since its 2011 peak with the metal down 53 per cent from there. In terms of retracement of the move from 2001, the metal is drawing close to its 61.8 per cent retracement level that is an important long-term support.


Published on April 20, 2013

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