Portfolio

Index Outlook: Down but not out

Lokeshwarri SK | Updated on January 24, 2018 Published on February 07, 2015

The indices are moving lower. But the short-term view has not yet turned negative



Investors remained on the backfoot for the second consecutive week. The searing rally since the second week of January that made the benchmarks gain almost 10 per cent, is giving way to some profit-booking now.

Despite stocks gliding lower over the week, the pace of the decline is not so alarming.

The trend along all time-frames — short, medium and long-term — remains up for the Indian equity market. However, if the decline continues for another week, it will weaken the short-term outlook.

The early part of last week was dominated by the Reserve Bank of India’s monetary policy meeting. That the RBI left the policy rate unchanged even as it reduced the statutory liquidity ratio disappointed many in the market. The parade of earnings announcements also caused stock-specific moves.

With the Budget scheduled for the end of February, the announcements that the Finance Minister are likely to make on the B-day will now start dominating tea-time conversations.

Investor sentiment will be affected by the Delhi election result, to be announced in the early part of the week. The industrial production numbers for December and the consumer price inflation for January slated for release next week will also be of interest as it will give us an indication on what the RBI’s next move is likely to be.

The decision on how Greece is going to manage its debt in the near term will influence the global markets this week. Crude oil that is surging higher will also help beaten-down stocks of oil producers.

Oscillators in the daily chart are signalling a sell. The 10-week rate of change oscillator moving into the negative zone implies that the there could be more pain in the short term.

Weekly oscillators are poised at the neutral zone. Further decline will denote a threat to the medium-term view.

Sensex (28,717.9)

The Sensex hit an intra-week low of 28,647 before closing 465 points lower for the week.

The week ahead: The Sensex is pausing just above the short-term support at 28,657, indicated last week. The pattern in the daily chart indicates the possibility of the index sliding further.

The Sensex could extend its slide to 28,329 or 28,000 next week. Investors should watch out for a reversal from the 28,000 zone.

Presence of the 50-day moving average at this level makes it an important buttress. Short-term view will turn negative only on a close below this level.

Short-term resistances are placed at 29,115 and 29,390. Short-term traders can initiate short positions if the index fails to go past the first resistance.

Medium-term trend: The medium-term trend in the Sensex continues to be up.

If the index sustains above the 28,000 mark next week, it will signal that the medium-term trend is not under threat. Breach of this level will pull the index down to the next support at 26,469.

Nifty (8,661)

The Nifty slid to end the week 147 points lower.

The week ahead: The five consecutive lower closes in the Nifty are currently forming a running correction. This is a bearish pattern that can be followed by another decline that could take the index lower to 8,529 or 8,429.

Investors can look out for buying opportunity in the range of 8,420 and 8,460, since the 50-day moving average is poised there. Fresh long positions should however be avoided on a decline below 8,420.

Rally in the early part of the week can take the Nifty to 8,774 or 8,860. Short-term traders can initiate fresh short positions in rallies with a stop loss at 8,860.

Medium-term trend: The medium-term trend remains unchanged. The immediate level to watch out for from a medium-term perspective is 8,065. If this level is breached, a decline to 7,500 is possible.

We maintain the targets beyond 9,000 at 9,290 and 9,405.

Global cues

Global indices closed with small gains last week. European equity markets remained strong on a weak euro and revival in crude oil prices. DJ Euro STOXX 50 closed at a six-year high.

CBOE volatility index declined after investors turned more confident after a rally in the US market last week.

The Dow Jones Industrial Average recorded a sharp reversal last week resulting in a bullish engulfing candle in the weekly chart. This reversal implies that the index can now go on to its previous high of 18,103 or beyond that to 18,426. The recovery in crude prices is sending a cheer through global markets. But the rally is still in a nascent stage.

Immediate hurdle for crude will be in the $59 to $60 range. Rally above $70 is however needed to signal a reversal in the medium-term trend.

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