Index Outlook: Market treads water at higher levels

The holiday-splattered week ahead is likely to witness subdued trading activity as many market participants take extended weekend breaks.

Investors are also likely to stop obsessing over politics and turn their attention to corporate earnings as the tech biggies get set to unveil their earnings numbers.

It was, however, politics all the way last week as voting to elect the country’s 16{+t}{+h} Lok Sabha gained traction.

The BJP manifesto released last week dominated media discussion with experts vying with each other to rave over or rant about the document.

Mergers and stake sales was another theme last week with the smart buy-out of Ranbaxy by Sun Pharma, Piramal Enterprise’s sale of Vodafone stake and the global merger of Lafarge and Holcim.

But economic data released after the end of the trading on Friday was far from comforting. Trade deficit hit five-month high while exports contracted.

Industrial production numbers were also disappointing raising a question on the reversal in the broader economy.

Foreign investors continued to repose faith in India equity; they have brought in close to $1.29 billion into Indian stocks so far this month.

The beginning of the long-awaited correction in the developed markets is likely to help emerging markets.

According to EPFR Global, flows into emerging markets equity funds climbed to a 61-week high in early April as a modest increase in retail redemptions was offset by the biggest institutional commitments since the second week of 2013.

Cash volumes reached record highs while derivative volumes were muted. Open interest in the futures and options have reached ₹1,50,000 crore.

Oscillators in the daily chart are dipping, indicating a bearish short-term view.

Negative divergence in the price rate of change oscillator implies that there is a loss of momentum in the short-term timeframe.

Weekly oscillators are however beginning to perk up implying that the medium-term view could be turning positive.

The Sensex hit a new high of 22,792 before giving up some gains last week.

The week ahead: Short-term support for the index exists at 22,329 and 22,197.

Investors holding on to short-term long positions can continue to do so as long as the index trades above 22,197.

If the index manages to hold above this level, it can move higher to 22,792 or 23,092 in the coming sessions.

Conversely, support below 22,197 is at 22,056.

Medium-term view: The medium-term trend in the index remains positive.

But we continue to maintain a cautious stance until the index clears the resistance zone between 22,300 and 22,800.

The Sensex also appears to have completed a five-wave move from the 19,963 low.

Key medium-term support is at 21,700. Investors can stay sanguine as long as the index trades above this level.

Medium-term target on a strong move above 23,000 is 23,835.

The Nifty too hit the high of 6,789 before giving way.

The week ahead: Immediate support leves for the index are at 6,671 and 6,580.

Short-term traders can hold their long positions as long as the index trades above 6,580.

If the index manages to hold above 6,676, it can then move higher to 6,853 or 6,945 in the days ahead.

Short-term trend will turn negative only on close below 6,580.

Medium-term trend: The medium-term view in the Nifty continues to be positive.

As we keep reiterating, the index faces medium-term resistance in the zone between 6,690 and 7,158.

Since the index is reversing lower from this region, investors need to stay cautious.

Key medium-term support however stays at 6,450. Target on a sharp move beyond 6,820 is 7,110.

Most global benchmarks lost their way towards the end of the week and recorded steep losses.

European indices recorded steep declines as the European Central Bank declared that it was considering monetary stimulus on the lines of the US Fed’s quantitative easing.

The CBOE volatility index spiked to 17.8 as sell-off in tech stocks on Nasdaq sent risk-aversion soaring.

The Dow retracted from the intra-week high of 16,456 to close at 16,026 last week. The index is currently pausing at the support at 16,000.

Break of this level can take the index lower to the next support at 15,340.

This level needs to be breached to signal the reversal of the short-term trend.

While rest of the Asian markets held relatively steady, the Nikkei tumbled almost 7.3 per cent last week.

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