Pre-empting the election results, the Indian stock market had an action-packed week and closed on an euphoric note on Friday. Both the Sensex and the Nifty soared to their new highs of 23,048 and 6,871 during the day. However, they closed 2.6 per cent and 2.4 per cent higher than the previous week.

The Bank Nifty, which was lagging behind the Sensex and Nifty in hitting a new high, finally breached its 2013 peak of 13,414 and surged to a new high of 13,814.25.

However, it is important to note that this index is nearing a crucial channel resistance on the chart, placed near 14,100. Failure to breach this level can trigger a sharp pull-back that can last for several months. This is a warning signal that is clearly visible on the chart amid the election-related optimism.

The rally was sparked by a heightened speculation that BJP, the current Opposition party, whose prime ministerial candidate Narendra Modi is considered more investor-friendly by the market, would sweep this general election. With this, the Sensex and Nifty have surged 15.5 per cent and 16.5 per cent respectively since September 23, 2013, the day Modi was announced as BJP’s prime ministerial candidate. Foreign institutional investors (FIIs) have backed this bet and poured over $12 billion into the equity market.

Exit poll results, the first indication to the real event, will be out this evening and the actual results are due on Friday, May 16. The market rally could extend further if the outcome of the exit poll indicates a win for BJP. However, with so much expectation building up for a positive outcome, even a slight variation against the market expectation could trigger a strong sell-off.

The election euphoria could overshadow the impact of the key economic data releases on the market in the coming week. Both the index of industrial production and the consumer and wholesale price inflation data, are due to be released this week. So, with another volatile week on the cards, a high degree of caution is the need of the hour for the market participants.

Sensex (22,994.23)

The 21-day moving average at 22,558.7, which was restricting the upside in the Sensex during the week and threatening to push the index lower, has been broken decisively in Friday’s sharp rally. This has given a short-term relief to the index.

The week ahead: The Sensex can extend its rally in the coming week. Important resistance is at 23,150 which can be tested during the week.

A break above this resistance can see the index moving higher to 23,200 levels. But a failure to breach the resistance at 23,150 can cause a reversal and take the index lower to 22,760 initially.

A further break below 22,760 can drag the Sensex to 22,400 there after.

Medium-term trend: The medium-term view remains positive within the expected 22,000-23,000 range. The index is now poised near the upper end of this range.

A breach above 23,000 will open the doors for a rally to test the next targets of 23,466 and 23,702 in the medium term. But a break below 22,000 can drag the Sensex lower to 21,500 or 21,451 — the 50 per cent Fibonacci retracement level.

Nifty (6,858.8)

The Nifty’s strong close above its 21-day moving average, currently at 6,745.5, has eased the threat of a short-term fall that was anticipated in this column last week.

The week ahead: Friday’s rally can extend this week as well. The probability looks high for the Nifty to test 6,945 where it might find some resistance. The inability to break above this resistance can pull the index down to 6,774. A further break below 6,774 will drag the Nifty further to 6,670. On the other hand, if the Nifty manages to breach 6,945, it can then test the psychological level of 7,000.

Medium-term trend: The Nifty retains its 6,600-6,900 medium-term range and is now heading towards the upper end of this range. A bullish breakout of this range above 6,900 can take the index higher to 7,158. On the other hand, declines below 6,600 can result in a fall to 6,512 — the 38.2 per cent Fibonacci retracement level and 6,450 in the medium term.

Global cues

Global indices closed mixed last week. The Dow Jones Industrial Average has closed just below the upper end of its 16,000-16,600 range. A strong break above 16,600 will be bullish and can result in a rise to 17,200. On the other hand, failure to breach 16,600 will keep the range intact and push the index lower to 16,000 in the coming weeks.

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