Global stock markets have to brace themselves to face monetary policy statements from three central bankers – Ben Bernanke, Haruhiko Kuroda and Raghuram Rajan – next week.

Since market participants seem to believe that the future stock price movement hinges on their policies, a bout of turbulence cannot be ruled out next week. Adverse statements from the three can only deepen the decline that began in the global equity markets last week.

It was a disappointing show, devoid of gumption, by stock markets last week. The euphoria generated by State election results fizzled out on Monday and the market benchmarks slid in a lackadaisical manner after hitting new life-time peaks. A sell-off in the global markets on the return of taper fears ahead of the FOMC meeting scheduled this Wednesday, proved to be the market’s undoing.

Economic data was not conducive and provided ammunition to the bears to burst the bubble of optimism. Export growth slowing down to 5.8 per cent in November and contraction in industrial production dampened sentiments.

The CPI growing at 11.2 per cent in November caused a sell-off in stock prices towards the end of the week.

Volumes in the equity segment were muted while there was adequate action in the derivative segment. Open interest in the derivative segment of the NSE remains around Rs 140,000 crore. The put call ratio declining to 0.95 implies that the market could be getting oversold, at least in the near term.

Oscillators on the daily chart are declining from the bullish zone towards the neutral region. The Sensex and the Nifty have also reached their 50-day moving average and are poised just above it. This implies that the short-term trend is facing a threat of reversing lower but has not done so yet.

A similar pattern in the weekly momentum indicators means that the medium term trend is also at risk here. But the decline needs to proceed a little further before the trend reverses lower.

Sensex (20,715.5)

The Sensex followed the first path outlined in this column last week. The index moved slightly above the previous peak of 21,321 to record a new life-time high of 21,484 before it turned and declined 792 points from its intra-week high.

It appears as if the index is set to spend a few weeks moving in the range of 20,000 and 21,500. As mentioned earlier, this is positive for the long-term prospects of the index. The medium-term view will be threatened only on a close below 19,850. Subsequent supports are 19,405 and 18,955. A close below 18,955 is needed to threaten the positive long-term view.

A rebound in the early part of the week will face resistance at 21,008 and 21,206. The inability to move beyond the first hurdle will mean that the index can decline to 20,300; 20,137 or 19,847 in the coming sessions.

Nifty (6,168.4)

The Nifty too, hit a new life-time high 6,415.2 in the opening hour of Monday and then lost ground rapidly to end the week 91 points lower.

The index is following the script given as the first option last week. This could be the third part of the correction that began from the 6,342-peak in the index. This wave has the targets of 6,187; 6,046 and then 5,905. There is thus, a slight possibility of the correction ending at these levels. But if the decline continues, the index can head towards the next levels.

There is a strong likelihood of the index moving in the band between 5,950 and 6,400 for a few more weeks before it attempts to move higher. The medium term view will turn negative only on close below 5,920. Subsequent supports are 5,770 and 5,618.

A rebound next week can make the Nifty head higher to 6,262 or 6,323. The inability to move above the first resistance will be the cue for traders to initiate fresh short positions. Downward targets are 6,046, 5,973 and 5,905.

Global cues

Global markets gave up some gains last week as nervousness resurfaced. There was a spike in the CBOE volatility index which closed 14 per cent higher for the week.

Major European indices including the benchmark, DJ Euro STOXX 50, recorded sharp declines for the second consecutive week. This down-move appears to be the onset of a medium-term downtrend in the index.

The Dow has finally given way and closed 264 points lower for the week. Short-term supports for the index exist at 15,614 and 15,264. The short-term trend will reverse lower only on a close below the second support. A strong close below 14,760 will put the medium term view in jeopardy.

The rebound in international gold prices in July and August 2013 has turned out to be a bear market pull-back with the yellow metal inching back towards its June low. The immediate support is the low made in June at 1,179. The support just below is the Fibonacci retracement support at 1,160.

This level can hold if the metal forms a double bottom at this level. A sideways move in the range of $1,200 and $1,430 is then possible as the metal spends a few more months in 2014 building a base from where to reverse higher. But the next target on decline below $1,200 is at $1,100.

> lokeshwarri.sk@thehindu.co.in

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