Index Outlook: Stepping below key support

There were no fireworks in Indian markets this Diwali. The opening session of Samvat 2069 had the Sensex sliding 52 points and the Nifty losing 17 points. That is a trifle worrisome, if you belong to the superstitious bunch. In the years between 2001 and 2011, Sensex closed the muhurat session lower only in one year, 2007. And there was pandemonium in the global market in the following year.

But let us look at the positive side. The fact that 10 out of the last 11 muhurat sessions ended in the positive implies that it was programmed to end thus. The negative closing this year implies the Indian market is no more controlled by credulous traders who punch in only ritualistic buy trades after completion of the puja in the muhurat session.

There was slew of negative economic data last week in the form of weak industrial production numbers, rising consumer price inflation and widening trade deficit. The dismal response to the 2G spectrum auction was yet another dampener last week. Both the benchmarks closed lower for the week.

Cash and derivative volumes were good, especially in the later half of the week. There is reduction in net purchases by FIIs. Open interest in derivative segment is edging close to Rs 1,50,000 crore indicating increasing trader interest.

Both the Sensex and the Nifty have closed below their 21 and 50-day moving averages last week. They have also closed below the trough formed on October 31, indicating that short-term trend has turned negative.

Oscillators in the daily chart declining into the negative zone corroborates this view. Weekly oscillators are declining from over-bought levels but they have not dipped into negative zone yet indicating that the medium-term outlook has not yet turned negative.

The Sensex (18,309.3) followed our script by moving close to our outer target last week. With the close below the 18,398 trough, the short-term trend has reversed lower.

One positive for the index is that it has now drawn close to the upper end of the gap formed on September 14. The gap area between 18,062 and 18,284 will support the index in the days ahead.

E-wave targets for the current down-move are 18,234 and then 17,951. Since the index is close to the first target, short-term investors should watch out for a sudden upward reversal from these levels.

Resistances for the week will be at 18,598 and 18,804. Short-term view will stay negative as long as the index trades below the first hurdle.

Key medium-term supports to watch out for are at 18,120 and 17,842. Medium-term view will turn iffy only if the index moves below these levels, paving the way for decline to 17,450 and 17,044.

Nifty (5,574)

The Nifty moved lower last week to move close to our target of 5,545. Since the index has declined below the trough at 5,583, it implies that the third wave from 5,815 peak is now unfolding.

This wave has the targets of 5,545 and then 5,456. Since the index is close to the first target, traders holding short positions should watch their backs.

If the index reverses higher from here, the resistances will be at 5,657 and 5,717.

The open gap between 5,447 and 5,526 is also a potential support zone.

In the medium-term, the index could decline to 5,500 or 5,415. Medium-term view will reverse lower only on close below 5,415.

Global cues

Global indices moved lower last week as investors fretted over the approaching fiscal cliff in US and geo-political tension in West Asia. Most benchmarks headed lower and closed the week with losses. The CBOE volatility index however moved lower to close at 16.4 indicating that investors aren’t too perturbed by the stock price gyrations.

The Dow continued its downward move losing 227 points last week. Last week’s decline has made the index close below the key short-term support at 12,650.

The index however has medium-term support at 12,400. Investors can watch out for this level now. This level needs to be breached to drag the index lower to the next support at 12,035. Resistances for the coming week will be at 12.935 and 13,215.

Strength in dollar sent crude prices up last week. But the long-term trend in this commodity is sideways in the band between $75 and $115 for Nymex crude futures.

The support at $75 needs to be breached strongly to indicate the possibility of a move further down to $64. On the higher side, the $100 is a strong resistance.


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