Technical Analysis

 INDEX OUTLOOK - Sun shines on Dalal Street

LOKESHWARRI S.K. | Updated on November 15, 2017 Published on February 18, 2012

Market is at its indefatigable best. What makes this rally remarkable is that the indices have not recorded a significantly since the beginning of this calendar. The weekly charts of the Sensex and the Nifty are proudly sporting seven green candles denoting seven consecutive weekly gains. The Sensex has tossed the hurdle at 18,000 aside and managed a close beyond this level. The Nifty too has made light of the obstacle at 5,400.

Foreign institutional investors pumping money in to secondary market appear to be the perpetrators of this bull-run. They have net purchased equity worth $2.8 billion in February and the tally for this calendar year is at $4.9 billion. Benign global environment, conducive macro economic data and bear squeeze could have also added fuel last week.

Volume was brisk in the derivative segment ahead of the expiry. The cash volumes were also good last week, after a long hiatus. Open interest has moved above Rs 1,50,000 crore. It will be interesting to see the action around Thursday since the put-call ratio in index options has also moved to the upper end of its band denoting an overbought condition.

Both the US and the Indian markets are closed on Monday. Traders will, therefore, have to scramble to unwind positions ahead on F&O expiry on Thursday. This can cause stock prices to do an entertaining jig next week.

Since the trend according to both daily and weekly chart are beginning to look positive. It is time to turn our attention to the monthly chart. Monthly oscillators are moving up from the bearish zone and are poised just below the crossover level. In other words, if the Sensex and the Nifty take this winning run a little further, there will be sunshine in the monthly chart as well and this bodes well for the long-term view.

Sensex (18,289.3)

The Sensex moved beyond our near-term target of 18,255 to attain the high of 18,423 last week. The up-move from December 20-low appears to be a very strong one with a third wave extension. Lack of correction since January 9 underscores this fact. This leg of the up-move can take the index higher to 18,572 or 18,826.

As we have been reiterating Fibonacci retracement level that can now act as an impediment is positioned at 18,826. It is to be seen if the index is able to break beyond this hurdle. This is a significant threshold from a long-term perspective. Move above this level will mean that the index can attempt to move close to its previous life-time high again.

This sharp rally has also mitigated the downward risk for this calendar. Any pull-back from now on might not go below 16,500 or 16,000 mark. Whether the index goes towards 21,000 or stays in the band between 16,000 and 19,000 will be decided in the run-up to the budget.

If the rally takes off from where it left next week, short-term targets will be 18,609 and then 18,915. Short-term supports will be available at 18,118 and 17,931. Short-term trend will reverse lower only on close below 17,627. Key medium-term support is at 17,160.

Nifty (5,564.3)

The Nifty appears to be in a hurry to get to our medium-term target at 5,648. The index moved very close to this level last week as it hit the high of 5,607. As explained earlier, 5,648 is a critical long-term resistance. Emphatic move above this level will mean that the index can move on to its previous peak at 6,338.

On the other hand, reversal from here will result in a movement in a broad trading band between 4,800 and 5,700 for the rest of this year.

The current sharp rally has closed the gaping hole that was opening at Nifty's feet at the beginning of this year. The downside risk is much lower thanks to this up-move.

For the week ahead, a strong opening will take the index up to 5,656 or 5,685 or 5,794. Supports will be at 5,505 and 5,442. Traders can hold their long positions as long as the index trades above the first support.

Global indices

Global equity markets moved sideways as they awaited outcome of the talk among European Finance Ministers on Greek bail out.

Hope that the deal would be signed soon sent stocks up towards weekend. CBOE volatility index dived down sharply to move below 20 again.

This move reflects confidence among global investors that things can improve from here in global equity markets.

The Dow moved sideways around its short-term resistance and closed slightly above the resistance at 12,900.

This cannot be construed as a break-out. The index needs to move further and close above 13,000 emphatically before we can assume that the long-term uptrend has resumed. Medium-term targets in that scenario would be 14,363 and 16,976.

The movement over the next couple of weeks is critical for determining the medium-term trajectory for this index.

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