As the popular adage in stock markets goes — markets slide down a slope of hope and climb a wall of worry. This couldn't have been truer in the current Indian context. Despite persisting worries on economic slowdown, earnings downgrade, European crisis et al, the Sensex and the Nifty are up 14 per cent from the December lows. The broader market is also making merry with BSE Small Cap index gaining 19 per cent and Mid Cap index by 16 per cent.

There was a lot going for the market last week. The Central Bank's move to ease liquidity through CRR cut and the signal that interest rates could head lower soon was received joyfully. The Federal Reserve followed up the bolstering act by announcing that it will keep policy rates low till 2014.

The rupee moving above the psychological level of 50 against the dollar and strong FII flows at $1.8 billion this year were other factors that ensured that the benchmarks closed in the green in all the four sessions.

Derivative expiry was peaceful and open interest below Rs 1,00,000 crore implies that many traders could have squared up their short positions.

Volumes were strong in the later part of the week and the Sensex and the Nifty have powered ahead above the critical levels of 17,000 and 5,200.

The next batch of quarterly earnings is likely to be tepid and that can temper the mood. Worries on Greece' ability to repay the 14 billion Euros falling due on March 20 will also weigh on global sentiment.

It needs to be noted that the Nifty is testing its 200-day simple moving average and has managed a close just above it.

The Sensex is yet to replicate this feat. Since this is a long-term reversal signal, we need to see a stronger break above these hurdles and more importantly, they have to sustain above them for few weeks. The crossover of 21- and 50-day moving averages is however good for this rally.

Our three white soldiers added a fourth in the weekly candlestick chart lending credence to the reversal. Oscillators in the weekly chart are also beginning to move in to the positive zone implying that a medium-term uptrend could be under way. The bullish monthly candle for January is yet another point to add in the positives list.

The bulls deserve a pat on their back for pulling the Sensex (17,233.9) above 16,850 resistance and managing a close above the 17,000 mark. Short-term investors will now have to watch the 200 DMA at 17,360. The area around 17,400 is also critical from a medium-term perspective since it occurs at 38.2 per cent retracement of the down-move from 21,108.

If this level is surpassed, the index can head to 17,953 and 18,121. Immediate supports are at 16,763 and 16,457. Close below the second support is required to mar the near-term view.

The charts are finally beginning to give signs of a sustained reversal. But the index has already completed one-third retracement of the fall from 21,108 peak. Key medium-term hurdles are at 17,106 and 17,416. If the index totters around these, it will mean that the bears can still engineer a crash in the months ahead. Medium-term targets on move above these hurdles are 18,121 and 18,826.

Nifty (5,205)

The Nifty recorded the peak of 5,217 and managed to close above 5,200 last week. As mentioned above, the index has reached two critical levels from a medium-term perspective. First is the 200-day moving average and second the 38.2 per cent retracement of the decline from 6,338 peak. It is to be seen if the index is able to move beyond this level emphatically. If it does so, then subsequent targets are 5,434 and 5,648.

However, inability to move above this level will mean that the medium-term trend remains down. The index can then head towards 4,790 and the December low at 4,531.

Traders need to be trifle careful in the week ahead since oscillators in the daily chart are overbought. Immediate supports for the index are at 5,017 and 4,894. Traders can play long only as long as the first support holds. The positive short-term trend will reverse once the index moves below the second support.

Global indices

Most global indices managed to move higher last week despite the lingering worries on Greece. While FOMC statement helped sentiment, lower than expected US GDP growth for the fourth quarter pulled US equity lower on Friday.

CBOE volatility index declined to 16.8 on Thursday, the lowest since last July. This shows that investors are not unduly worried about a collapse in equity prices.

The Dow recorded the peak at 12,842 before closing the week slightly lower. The bearish star in the weekly candlestick chart is negative for the upcoming weeks.

As discussed earlier, reversal below 13,000 will mean that the index will remain in the band between 10,400 and 13,000 for few more months.

The 13,000 hurdle needs to be crossed strongly to signal that a fresh leg of the long-term up move is in progress.

If it does not manage to shake up the bearish trend next week, decline to 11,910 or 11,350 will be on in the months ahead.

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