Index Outlook: Market on a bumpy stretch

Stock prices struggled to move forward as the shenanigans of our politicians kept them on a tight leash last week. While Mamata Di’s no-confidence motion made market participants edgy in the first part of the week, disruptions in parliamentary proceedings roiled sentiment in the second half.

With a slew of bills on economic reforms slated for passage in the winter session, such adjournments are not likely to go down well with either domestic or foreign investors.

The rupee declining below the 55-mark against the dollar added to the pressure on stock prices. The manner in which the public offerings of Hindustan Copper and Tara Jewels huffed and puffed to get minimum subscription further dampened the sentiment.

Cash volumes were lacklustre while derivative volumes were good in the second half of the week. Put call ratio on index options remains below 1 indicating that traders are not betting on the market sliding further from these levels. FIIs were net buyers, but they were pecking at the stocks, and not buying voraciously. Net FII purchases in the first four sessions were less that $250 million.

The week ahead could be quite a busy one for the market as the November derivative contracts roll into expiry on Thursday. The proceedings of the winter session will also set the tone for the truncated week.

Oscillators in the daily chart deteriorated further. The bearish crossover of the 21 and 50 day moving averages also implies that the short-term outlook remains under a cloud. The medium-term view is threatening to turn negative as the weekly relative strength index is poised around 55 after moving lower from the bullish zone.

The two-star formations in the monthly candlestick chart denote indecision. Since this occurs after a strong up-move from the low formed in June, investors ought to tread cautiously since there can be a break-out in either direction from these levels.

Sensex (18,506.7)

The Sensex reversed higher after hitting the intra-week low of 18,255 in line with our expectation. The gap indicated in our previous column – between 18,062 and 18,285 has proved to be a reliable support so far. But the weak closing in the last two sessions and the Sensex’s struggle to move above 18,600 implies that the short-term view stays bearish.

If the index is unable to move above this level in the early part of the week, it can slide lower to 18,256 or 18,170 in the short-term. E-wave targets on a strong close below 18,200 are 18,021 and then 17,685.

Resistances for the week will be at 18,595 and 18,800. Short-term trend will turn positive only on close above 18,800.

The medium-term trend continues to be positive. But the index is currently reversing lower from critical long-term hurdle between 18,800 and 19,100. It is possible that the index bides some time in the zone between 17,800 and 19,100 before garnering strength to break higher.

Medium term view will deteriorate only on a close below 17,800. Subsequent supports are 17,450 and 17, 044.

Nifty (5,626.6)

The Nifty recorded the low of 5,549 before reversing upward last week. But the fact that the index halted below our first resistance implies that the short-term view remains bearish. Traders can continue to play short with stop at 5,660. Immediate downward targets are 5,540 and then 5,520.

Sharp move below 5,520 will drag the index lower to 5,477 and then 5,376.

Resistances on move above 5,660 are 5,720 and 5,815.

The medium-term view for the index stays positive. We will retain this view as long as the index trades above 5,415.

Global cues

Global markets ended the week on a positive note. Europe continued to be a point of worry after European finance ministers failed to decide on the debt-reduction package for Greece. But European stock market performed well last week despite these worries.

DJ Euro STOXX 50 managed to close 129 points higher with a bullish engulfing candle in the weekly chart.

HSBC Markit’s PMI reading showing Chinese manufacturing at a 13-month high in November helped salvage the mood in global markets. This reading climbed above 50 to 50.4 indicating economic expansion.

The Dow did a U-turn last week and finally went on to close above the 13,000 mark. Strong thanksgiving shopping in the US lifted the mood towards the weekend.

The resistance that needs to be watched now is at 13,200. Short-term trend will turn positive only on move above this level. Next target would be the index’s recent peak at 13,660.


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