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We have another short week ahead of us with the market closed on Thursday.
But trading could get choppy as geopolitical tension rears its head again as US and G-7 allies have threatened to impose fresh sanctions on Russia early this week.
Russia is already beginning to feel the impact of its act with a $51-billion outflow of foreign investor funds in the first quarter of this year.
The Federal Reserve Open Market Committee’s meeting scheduled for this week will also preoccupy investors as the Fed is likely to reduce its quantitative easing program by another $10 billion this month.
As the end of the ongoing election draws near, market participants are likely to become more circumspect.
We already have foreign institutional investors on the back-foot over the past month, reducing their purchases. The Sensex and the Nifty could bide their time in a range at higher levels until the election outcome is known.
The Sensex and the Nifty began last week on a thunderous note with the benchmarks surging to new highs in the early part of the week. But the meteorological department’s prognosis of a below normal monsoon this year put a dampener on the proceedings making the indices erase all the early gains.
We have a hanging man candlestick followed by a gravestone doji pattern on the weekly candlestick chart of the Nifty. These are ominous patterns and precede a downward move.
There is however no need to get flustered over these, since the indices are moving sideways in the upper range over the last four weeks. Such patterns are common in range-bound moves.
The sideways move in the Sensex and Nifty over the past month also appears to be a running correction that implies a bullish undercurrent. Such moves appear in the mid-point of strong medium-term up-moves.
In the oscillator charts, the short-term looks weak, with daily oscillators drooping lower.
But weekly oscillators are perking up again implying the possibility of another rally over the coming weeks.
Sensex (22,688.07)
The Sensex has closed on a weak note with a bearish engulfing pattern on the daily candlestick chart. Short-term weakness is therefore expected to continue.
The week ahead: The Sensex can decline to 22,500 or 22,400 in the coming week.
The short-term trend will turn negative only if the index records an emphatic close below 22,264.
If the index manages to stay above 22,656, it can move higher to 23,083 or 23,348 in the coming week.
Medium-term view: The medium-term trend in the index stays positive. Sensex appears to be in a sideways consolidation phase since April 15. This can make the index move in the range between 22,000 and 23,000 in the run up to the election. If there is a strong pre-election rally, the Sensex can rally to 23,466 or 23,702.
Nifty (6,782.7)
The Nifty hit the intra-week high of 6869 before ending with a mere 3-point gain.
The week ahead: The bearish engulfing pattern formed on Friday has turned the short-term view negative in the index. Immediate downward targets are 6744 and 6716.
A reversal from either of these levels is something that traders should watch out for.
Breach of 6,700 will take the index to 6665. Short-term view will turn negative only on a strong close below this level.
If the index manages to hold above 6770, it can move higher to 6899 or 6974 in the coming sessions.
Medium-term trend: The medium-term view in the Nifty remains positive. The index is moving in a sideways range since April 15.
Third part of this move can drag the index down to 6665 or slightly lower.
But the index is likely to stay in the broad range between 6,600 and 6,900 in the run-up to the election.
Break above 6,900 in a pre-election rally can take the index to 7,158.
Global cues
Global indices closed on a positive note, near their recent highs, despite the volatility witnessed towards weekend.
CBOE volatility index declined to a low of 12.9 reflecting complacency among investors.
The Dow has closed near its life-time high 16,501.
The index is moving in a sideways range between 16,000 and 16,500 since the last week of February.
This sideways move is positive for the index and portends the possibility of a break higher to 17,200 levels.
(This article was published on April 27, 2014)
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