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The rupee was again at the epicenter of the turmoil last week as it hit an astounding level of 68.8 against the dollar on Wednesday. Equity markets reacted predictably with the Sensex declining to the intra-week low of 17,449, while Nifty declined to 5,119 in that session.
With crude on the boil, the Food Bill threatening to derail the fiscal deficit and the Land Bill spelling further hurdles for infrastructure projects, the markets had little to cheer about last week. It was the derivative expiry that came to the rescue of stock prices, helping the bulls defend the 18,000 bastion in the Sensex.
The week ahead too promises oodles of volatility as the June quarter GDP numbers announced on Friday evening was a shocker. Neither the equity nor the currency market is likely to accept quarterly GDP growth of 4.4 per cent with equanimity.
Foreign institutional investors are already appearing quite squeamish and inclined to move towards the exit door.
Net sales by these investors last week was around $400 million. Weak macro numbers could accelerate their selling.
With the US all set to attack Syria by itself, crude prices are going to be impacted next week, which, in turn, can make the rupee gyrate further. In short, an interesting week (as the Chinese mean it) is on the cards.
August was relatively innocuous with just 3.7 per cent lost in the Sensex and 4.7 per cent in Nifty.
We are now in the much-feared month of September, when the FOMC is scheduled to spell out its plan for QE tapering. Equity market is likely to be nervous in the run-up to the meeting that is scheduled on September 18.
The presence of a Fibonacci time-cycle line, at September 2013, also tells us to expect a major reversal in market in this month.
Both the Sensex and the Nifty have closed on a flat note after a volatile week.
The formation of yet another hammer formation in the weekly chart is a positive as it implies that buyers are willing to buy at lower levels.
Sensex (18,619.7)
Despite the roller-coaster ride witnessed last week, net weekly loss in the Sensex was less than one per cent.
The index is moving sideways in the range of 17,800 and 18,700 over the last two weeks. But as per E-wave counts, we are getting some ominous signs.
The rally that began last week has immediate resistance around 18,560. The index is already past this level.
If it reverses lower before moving above 19,000, it could mean that there can be a steep decline in the offing.
Downward targets in this event will be 16,885 and then 15,777.
Since this will be the third wave down from the 20,351 peak, it can be pretty swift and devastating. The index needs to close above 19,242 to mitigate the bearish short-term outlook.
Nifty (5,471.8)
The Elliott wave pattern on the Nifty too is foreboding to say the least. A zigzag pattern appears complete in the index from the peak of 6,093 recorded in July 2013.
If the pull-back since last week is the second wave, it has already achieved its minimum target at 5,493.
Inability to make any progress on Monday morning will mean that the third from the 6,093 is unfolding.
This wave has the targets of 4,887 and 4,515. If the index manages to move higher next week, resistances will be at 5,605 and 5,720. Short-term trend will turn positive only on a strong close above 5,720.
The index has already tested the 61.8 per cent retracement of the previous up-move from the December 2011 low.
This support at 5,180 will be the first halt if the index starts sliding next week. If this level is breached, the targets mentioned above will come into play.
Since the third leg of any move is the swiftest and deepest, if the index starts sliding early next week, it will mean that the Nifty could be back at its 2011 low before the end of September.
Global cues
Many global benchmarks reversed their short term up-trends last week. All the European, emerging market and the US benchmarks recorded steep declines.
CBOE volatility index moved above the medium-term trend deciding level of 16.9 and managed to close above this level for the week.
If the index continues moving above 17, it will mean that the down-trend in US markets is here to stay. The VIX might then be able to move to its June high of 21.9.
The Dow closed 200 points lower last week to end below the key short-term support at 15,000.
As indicated earlier, next short-term target for the index is 14,500. The medium-term trend will reverse lower only on a close below 14,500. Next target for the index is 13,700.
>lokeshwarri.sk@thehindu.co.in
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