Index Outlook: Poised to take wing

The people of the country are going through the motions of everyday life even as their thoughts are riveted on the ongoing polls. The stock market is no different.

We have the usual noises of economic data, company earnings, and so on, but most investors appear preoccupied with the Lok Sabha election, having postponed major investment decisions until the election outcome is known.

The lackadaisical movement in the benchmarks is a reflection of this. Of course, the holidays last week might have contributed to the dull trading.

We have another short week ahead of us. Stock exchanges will be shut as the Mumbaikars go to polls on Thursday.

But action on the exchanges this week is expected to be a little livelier. The derivative expiry scheduled for Thursday can usher in volatility as traders square their positions.

Stock-specific action is also likely to continue as the stream of quarterly earnings flows in. After the IT companies, it is now the turn of the leading banks to regale investors with their numbers.

With US President Barack Obama threatening fresh sanctions on Russia if the ongoing talks fail, geopolitical worries can rear their head again next week.

Macro data releases last week were depressing. WPI reading for March was at 5.7 per cent, well above the RBI’s tolerance level.

The more disturbing number was the core inflation at 3.5 per cent, the highest in the past year. Industrial production too contracted by 1.9 per cent in February from 0.8 per cent growth in the previous month.

Forecast of a below-normal monsoon this year is another dampener.

The earnings announced by the IT biggies, including Infosys, TCS, Wipro and HCL Technologies, however provided something to smile about.

The completion of the ₹20,000-crore auction of government bonds last week is also something to cheer about as the concern on tight liquidity is now behind us.

Foreign institutional investors turned net sellers in equity last week. Volumes were tepid in cash segment though they picked up in derivative segment towards the weekend. Open interest in the derivative segment touched ₹167,000 crore.

Oscillators in the daily chart are declining but they are halting just above the neutral zone.

This implies that despite a slowdown in momentum, the short-term trend is not negative. There is a possibility of a short-term up-move from these levels.

Weekly oscillators are more positive. The weekly rate of change oscillator as well as the relative strength index are moving higher after testing the zero line. This denotes a strong medium-term trend.

Sensex (22,628.8) The Sensex remained confined in the range between 22,250 and 22,750 for yet another week.

The view along short as well as the medium term therefore remains positive.

The week ahead: The Sensex has finished the week on a strong note. Immediate resistance for the index is however at 22,792, 22,939 and 23,000.

The area between 22,900 and 23,000 is a strong resistance zone for the Sensex and short-term traders should watch their step in this region. Key short-term support is at 22,197. Breach of this level can take the index down to 21,573.

Medium-term view: The medium-term trend in the index stays positive. That the index continues to trade close to its lifetime highs implies that there is a strong propensity for it to move higher.

If we extrapolate the move from the 17,449 low, we get the first target at 22,355 and the next at 23,835. So the next target we are working with is at 23,835. Medium-term view will turn negative only on a close below 20,755.

Nifty (6,779.4) The Nifty remained in the range between 6,600 and 6,800 forming a hammer pattern in the weekly chart. The index has been moving sideways within this range over the last three weeks.

The week ahead: The Nifty closed on a strong note last week. Immediate targets for the index are 6,819, 6,904 and 7,052.

These targets are achievable if the index manages to hold above 6,665. Next short-term supports are 6,627 and 6,581. Short-term view will turn negative only on close below 6,580.

Medium-term trend: The medium-term view in the Nifty is positive. Extrapolation of the move from the 5,119-low gives us the targets of 6,690 and 7,158. Since the index is already above the first target, it can now attempt to move to the next.

Key medium-term support exists at 6,500.

Global cues Global indices moved slightly higher last week as the quarterly earnings of various companies dictated trading.

CBOE volatility index declined sharply to close near 13 implying that investors in the US and Europe are not yet worried about a sustained corrective phase.

The Dow recovered from the intra-week low of 16,000 to close with 381 points gain.

The index is moving in a very narrow band between 16,000 and 16,500 over the past 10 weeks.

The medium-term trend is positive and if the index manages to hold above 16,000, it can break higher to 16,734. Key medium-term support for the Dow is at 14,700.

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