Sensex (16,866.9)

Indian equities dug in their heels last week and did not give up any gain despite the selling fury on Friday. Investors spent the better part of the week awaiting the two speeches; President Barrack Obama's jobs speech and Federal Reserve Chairman's address to the Economic Club of Minnesota.

While the President's speech was full of promise, it left investors quaking in their boots at the thought of another long-drawn debate in the US parliament to pass the bill. On the other hand, Mr Bernanke's speech once again stopped short of announcing specific measures to stimulate the US economy, leaving investors high and dry.

That made market participants turn their attention to Europe once again and the prospect of an impending Greek default sent yet another tremor through the global markets on Friday. While the unfolding events in Europe will dominate the proceedings next week, investors are also likely to focus on the macro economic data ahead of the RBI's mid-quarter monetary policy review meeting on September 16.

Volumes were extremely low in the derivative segment implying that traders are getting jittery at the sudden twists and turns that the stock prices are taking these days. The FIIs were net buyers in some sessions. Open interest moved up slightly though it is nowhere close to the average levels seen in the recent months. Persistently high put-call ratio denotes that short positions are getting built at higher levels.

Oscillators in the daily chart have cut across in to the bullish zone from the oversold levels denoting that the short-term trend could be turning positive. But the weekly rate of change oscillator continues in the negative zone implying that the current uptrend has not impacted the medium-term down-trend yet. Monthly oscillators are in the negative zone but they are still far above the lows recorded in late 2008 and early 2009.

The Sensex declined to the low of 16,488 before rebounding to 17,212 implying that this short-term rally is unfolding in to a more complicated structure. The bearish engulfing candle and evening star pattern formation on Friday that pulled the index below 17,000 is however not good news. There is a strong likelihood of one leg of the short-term uptrend from 15,765 low having terminated on Friday. What follows in the short-term can be:

Decline to 16,657, 16,487 or 16,316 over the ensuing sessions. Reversal from either of these levels will mean that the index can move to 17,448 or 17,845 in the weeks ahead.

The Sensex needs to fall below 16,316 to signal the possible resumption of the medium-term down-trend. Downward targets in this case would be 15,765, 15,643 or 14,964.

Close above 17,845 is required to signal that the medium-term view is turning positive. If the index continues to struggle to move beyond 17,000, prolonged movement in the range between 15,500 and 17,000 can follow for few weeks. This can be construed as a base-building effort by the index. But the more risk-averse investors can wait for a firm close above 18,000 before venturing to bottom-fish.

Nifty (5,059.4)

The Nifty too could not cover much ground last week and reversed lower from the intra-week peak of 5,169. The weekly close below the key resistance at 5,100 also leaves the short-term outlook in a limbo. The most likely move in the initial part of the week is a decline to 4,997, 4,944 or 4,891.

Reversal above the 5,000 mark will be a short-term victory for the bulls and it will imply that the index can move higher to 5,230 or 5,350 in the weeks ahead. Firm close above 5,350 is however needed to signal that the medium-term trend is beginning to reverse higher.

The going will deteriorate only when the Nifty declines below 4,891. This will indicate that the medium-term down move has resumed and the index can now head lower to 4,780, 4,720 or 4,608 in the weeks ahead.

Global Cues

It was a bumpy ride for the global markets last week with stock initially slipping, then raising their heads slightly only to get beaten back again on Friday. Things came to a head in the global market towards the weekend on news of resignation of an ECB executive board member, Mr Jürgen Stark, due to his displeasure at ECB's unceasing buying of bonds of troubled European nations.

Mounting concerns that Greece could default on its sovereign debt commitments this weekend made yield on their bonds rise, further accelerating the sell-off. Rising risk-aversion sent investors in to gold and US treasuries as stock and crude oil sold off. The dollar index spiked above the short-term resistance at 76.5 to 77.5 indicating heightened nervousness among the global investing fraternity.

CBOE VIX that declined to 32.8 mid week, spiked on Friday to end the week at 38.5. This index needs to decline below 28 to signal that the short-term trend is turning positive again and investors' nerves have quieted down.

The chart of DJ Euro Stoxx that is composed of 50 of the blue-chip stocks from Euro-zone is very precariously placed at the short-term support at 2,070. Any further decline will mean that this index is moving towards the March 2009 trough.

The Dow moved in line with our expectation declining to the immediate support around 11,000. Movement in either direction is possible over the near-term. Further decline will drag the index to the recent low of 10,604, while the upward reversal will take the index higher to 11,700 or 12,000. Key long-term support at 10,400 in the vicinity is however the level that investors need to be more concerned about.

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