Portfolio

Bulls storm the 19,000 peak

Lokeshwarri S K BL Research Bureau | Updated on December 02, 2012 Published on December 01, 2012

Most of us would have undergone the experience of going to bed in the gloomiest of moods only to wake up to a world full of promise. The situation was quite similar in the stock market last week with investors suddenly going on a buying spree to lift the Sensex above the 19,000 mark and the Nifty beyond 5,800.

Not much has changed with the continuing political impasse, GDP growth at three year low of 5.3 per cent for the September quarter and rupee on a downward spiral. But since stock price movement is just a manifestation of collective expectation of a number of men and women, one can not expect rational explanation for all market moves.

Rating agency Moody’s retaining stable outlook on India’s sovereign rating and the new debt deal for Greece provided were the straws that bulls used to pull stock prices higher. Agreement on a debate and voting in the Lok Sabha on FDI in multi-brand retail also sent market participants into raptures.

Bears scurrying to cover their short positions ahead of expiry of the November derivatives contracts on Thursday too contributed to the upward momentum. Cash volumes were at record highs on Thursday and Friday. Derivative turnover too crossed Rs 300,000 crore on Thursday, a new record. FIIs continued to buy through the week taking their tally for net purchase for November to $1.7 billion.

The 250-point surge in the Nifty and more than 800-point rally in the Sensex has suffused the monthly charts with a healthy glow. Momentum oscillators in both the daily and weekly chart are upbeat though the daily oscillators are in the overbought zone.

The Lok Sabha debate scheduled for Tuesday and Wednesday and the passage of other economic bills in Parliament will influence proceedings in the market next week. With the looming year-end holiday season most fund managers would prefer to close their books with profits, reducing downward pressure on stock prices.

Sensex (19,339.9)

The Sensex broke past the resistance at 18,800 on Tuesday and went on to close on a strong note on Friday. The short-term trend has turned positive with the close above 19,137. But the weekly close was only slightly above this level. We need to see the index sustaining this bullishness for couple of weeks more to decide if it can qualify as a long-term break-out.

The e-wave count that has seemed most plausible until now is that an irregular flat is unfolding from the 15,135 trough. The C minor of this pattern has the targets of 17,842, 19,136 and 20,432. The index has not raced away from the second target yet. If it does so, we will consider the third target.

If we consider the break-down of the move from 15,748, the short-term rally that began from November 19 has the targets of 19,054, 19,549 and then 20,118. The peak at 19,811 formed in April 2011 will also be a short-term target for the index.

To put it simply, the Sensex has immediate target at 19,549. Investors should stay cautious as long as the index trades below this level. Targets on break above this level are 19,811 and 20,118.

The medium-term trend stays positive. Index movement over the next couple of weeks will determine if the move from 15,748 is a fresh leg of the long-term uptrend or part of the correction that began from 21,108.

Nifty (5,879.8)

The Nifty also took the bears by surprise, surging beyond the peak of 5,815. If we consider the target of the third leg of the move from 4,531 low, we arrive at the targets of 5,450, 5,870 and 6,290.

The Nifty too is poised close to the second target.

Break-down of the move from 4,770 low gives us the targets at 5,794, 5,947 and then 6,122. Since the April 2011 peak in the Nifty formed at 5,944, investors need to watch out for the zone around 5,950 as a potential reversal point. If this level is breached, the index can move on 6,122.

Short-term supports for the index are at 5,771, 5,701 and then 5,548. Short-term traders can hold their long positions with stop loss at 5,760. Medium-term trend will stay positive as long as the index trades above 5,450.

Global cues

Despite the ongoing stalemate over the US fiscal cliff, most global indices closed the week on a positive note. CBOE volatility index moved at lower levels between 15 and 17 reflecting continued optimism about the prospects of the stock markets.

The Dow had a choppy week, first declining to 12,765 and then recouping all the losses to close 15 points higher. Immediate resistance for the index is at 13,220.

The index needs to record a close above this level to signal a reversal in the short-term downtrend. Inability to do so will imply that the index will trudge lower to 12,500 or 12,035 again. The medium-term trend in Dow continues to be positive and close below 10,400 is needed to reverse this view.

Asian indices closed strong last week with the Philippines Composite Index and Thailand’s SET moving to new life-time highs. Shanghai Composite however drooped.

lokeshwarri.sk@thehindu.co.in

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