Technical Analysis

Something’s gotta give

Lokeshwarri SK | Updated on November 22, 2014 Published on November 15, 2014

Indices are moving in a narrow band. A sharp break-out is now inevitable

Benchmark indices continued their nervous jig at higher levels last week two. We have had two consecutive weeks of indecisive market movement.

The Sensex is stuck in a 500-point band between 27,700 and 28,100 and the Nifty between 8,300 and 8,400.

The intra-day movement has also been exasperating over the last eight sessions. The indices have been opening slightly higher and then slumping by mid-day to close marginally in the green or the red.

This shows that buyers are unwilling to buy at higher levels but are buying in declines, thus preventing a sharper decline.

It is to be seen who blinks first; the bulls or the bears. The slightest inkling of a possible interest rate cut can push prices higher from these levels.

Else, gravity will take its toll and drag prices lower. Traders can continue playing long since the trends along all time frames — short, medium and long — continue to be up.

There wasn’t much happening in the domestic market last week barring earnings announcements.

Economic data was cheerful; the consumer price inflation and the wholesale price inflation moved to multi-month lows and the industrial production number for September was also better than the previous month. But the RBI’s reiteration that it is not ready to lower rate is keeping optimism in check.

Crude dredging new lows is another positive, though the hike in excise duty on petrol and diesel wasn’t too well-received.

On the global front, US markets are also as edgy with benchmarks at record highs and stretched valuations.

Foreign investors have been buying heavily in both equity and debt. They have net purchased stocks worth $1.5 billion and debt of $2.3 billion so far in November.

Their tally for this year in equity and debt has risen to $38.5 billion. This buying support appears to be keeping stock prices afloat.

Volumes in cash market were high last week while derivative volumes were lacklustre.

This implies that while smaller investors are active in the market, the more seasoned ones are going slow with their trading.

Open interest in the derivative segment of the NSE is quite high at ₹225,000 crore. Put call ratio close to one shows that the bulls and bears are equally divided at this point.

Momentum indicators in the daily chart of the Sensex and the Nifty are moving sideways in line with the short-term trend in the indices.

The weekly momentum indicators are however moving higher after testing the neutral region. This denotes a more positive medium-term view.

Sensex (28,046.6)

The Sensex continued trudging sideways last week. There is therefore no change in the short- or medium-term view in the index.

The week ahead: The prolonged sideways move has got to snap soon. Since the short-, medium- and long-term trends continue to be up, it is best to stay bullish, unless there are clear signs of a reversal.

As explained last week, the index has strong resistance around 28,000. The index is still struggling to get past this level. A strong break above 28,100 can take the Sensex to 28,353 or 28,527.

Key support for the index now is at 27,000. This occurs at 38.2 per cent retracement of the previous up-move and the 50-day moving average is also poised here. Break of this support will take the index to 26,632 and 26,326.

Medium-term trend: The medium-term trend in the index stays positive. But the index has strong resistance in the zone between 28,000 and 28,500.

We need to see a sharp move above this zone to confirm a sustainable break-out.

Medium term target on a break above 28,500 is 29,694. Key medium-term supports are at 25,000 and 24,500.

Nifty (8,389.9)

The Nifty too moved sideways and closed with minor gains last week.

The week ahead: The index has been trudging sideways over the last eight trading sessions. Since this sideways move follows an up-move from the low at 7,732, it is best to bet on the long side. These are the guide-posts for next week.

Nifty can move higher to 8,493 or 8,585 and lose steam from there. Short-term investors can hold their long positions with stop at 8,280 and wait for the index to hit these targets.

Short-term supports are at 8,157, 8,065 and 7,990. Short-term view will reverse only on a close below 7,990.

If there is an extremely sharp up-move next week that takes the index above 8,585, the next target is 8,734.

Medium-term trend: The medium-term view for the Nifty stays positive. We maintain the medium-term target above 8,450 at 8,892. Key medium-term support stays at 7,300.

Global cues

Global markets took another step lower last week. Nervousness regarding the state of the global economy continued to weigh on global investors. The US markets however managed to continue trading at higher levels. The CBOE volatility index moved further lower to 12.3, as the level of complacency among these investors grew.

The Dow hit a fresh life-time high at 17,705 before ending the week 61 points higher. The medium-term target for the index continues at 18,486.

Previous peak of 17,350 is the immediate support for the index. The area around 17,000 will however be a key psychological support.

The Nikkei gained another 3.6 per cent last week. It seems to be on course to reach the 2007 peak of 18,269.

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