Index Outlook: Market at crossroads

The euphoric reaction to the announcement of a parliamentary vote on FDI in retail gave way to a ‘so what’ feeling in the market last week, despite the ruling party winning the vote in both the Houses. Sensex and Nifty clung to higher levels but there wasn’t sufficient impetus to make prices break higher.

Perhaps it has something to do with the month of December when all one can think of is the winter break. The three public offers bunched up last week could also account for this apathy towards the secondary market.

Both cash as well as derivative turnover were subdued initially but spiked in the second part of the week. Index put call ratio declined below 1 indicating reduced number of short positions in the market. FIIs were net buyers through December; they have net purchased over $1 billion in equity so far this month. Open interest continues to be good at around Rs 1,40,000 crore, signalling increased trader interest.

Oscillators in both daily and weekly chart are featured in the overbought region signalling that these trends are mature.

The long-term trend is however looking promising as the monthly oscillators move into the bullish zone.

Industrial production and wholesale price inflation numbers to be released next week would be of interest to investors. Government’s ability to pass at least few of the pending bills on economic reforms in the ongoing parliamentary session and the response to the IPOs will also set the tone for trading in the week ahead.

Sensex (19,424.1)

Sensex did not cover any ground last week, closing with mild 84 points gain. It was a very iffy movement in all the five sessions with four stars and one hanging-man doji in the daily candlestick chart. In e-wave terms, last week’s move would be called a running correction that is a signal of strength. But weak daily closes somewhat dilutes this assumption.

The narrow weekly range and mild gain last week means that the quandary we are facing with regard to the medium-term count remains unresolved. As explained earlier, immediate target for the Sensex is 19,549.

The index moved close to this level last Friday and reversed lower. There is the possibility of the medium term uptrend from the 15,748 low coming to a halt around this level.

But if it manages to move higher, it can go on to 20,118. Key medium-term support for the index is at 18,255.

For the week ahead, the index could turn volatile as correction seems to be on the cards. Immediate supports for the index are at 19,186 and 19,050. Short-term trend will turn negative only on close below the second support. Subsequent supports would be at 18,890 and 18,744.

Short term targets on move higher are 19,811 and 19,969.

Nifty (5,907.4)

Nifty too reached the key resistance at 5950 indicated last week and is biding its time there. The hanging man pattern followed by a black candle pattern on daily chart does not bode well for the near-term. There could be correction in the beginning of the week to 5839 or 5800.

The short-term trend will be threatened only on close below 5800, making the index head towards the next supports at 5750 and 5700.

If Nifty manages a move above 5950 early next week, short-term target would be 6082.

We retain the view that the index faces strong medium term hurdle at current levels.

If it manages to move higher, next target would be 6122.

The index needs to close below 5500 to reverse the positive medium term view.

Global cues

Germany’s Bundesbank cutting its growth forecast and warning that Germany could slip into recession early 2013 affected the mood on Friday. The European Central Bank also came out with muted growth projection for the euro zone and global economy last week. Global indices managed to gain slightly despite these forecasts. The DJ Euro STOXX 50 index also managed to close 1 per cent higher for the week.

US stocks were buoyed by news of unemployment rate for November falling to four-year low for November. The Dow managed to close with weekly gain of 129 points. But despite this rise, the index continues to move below the short-term resistance at 13,220 indicated last week. We stay with the view that close above this level is required to signal the intent to move on to 13,647. Else, there can be a downward move to 12,471 again. The medium-term trend in the index also stays positive as long as the index moves above 12,471. Targets on break of this level are 12,038 and 11,655.

Most Asian indices recorded strong closes. Philippines’ PSE Composite however walked away with the laurels, with weekly gain of 3 per cent. This index is up 32 per cent so far this year.

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