Technical Analysis

Market poised on the brink

Lokeshwarri SK | Updated on January 24, 2018 Published on March 28, 2015


The first quarter of 2015 has been full of sound and fury signifying nothing; at least in terms on index returns. Stocks have been struggling to hold on to higher levels. Despite the Sensex crossing above 30,000 briefly and the Nifty hitting the 9,000 peak, conviction level among investors has been low.

The correction that began in March has erased all the gains made by the Sensex and the Nifty since the beginning of this year. In short, the benchmarks have made absolutely no progress in the first three months of trading this year.

However this kind of sideways movement should not be derided. This is the best that market can do – move in a range – till earnings catch up with price.

The last week of March has not been too good for Indian markets. After trudging desolately lower in the first three sessions, indices recorded a sharp sell-off on Thursday.

Traders unwinding long positions in the last trading session of the March derivative series as well as geopolitical tension caused by Saudi Arabia launching military operations in Yemen caused stocks across the globe to crash in that session.

The truncated week ahead could see stocks try to stabilize at current levels. With the Sensex and the Nifty down almost 9 per cent from their recent peaks, bargain hunting can emerge in the week ahead.

Despite the perception that foreign portfolio investors were net sellers last week, they have been buying in many of the sessions last week. The tally for their purchases in equity in March has now risen to $1.9 billion. They have bought $1.4 billion of debt so far this month.

Daily oscillators have moved deeper in to the negative zone. The price rate of change oscillator is attempting to reverse from the over-sold zone.

The worrying part is the negative divergence in the weekly oscillators such as the moving average convergence divergence indicator. This indicator is giving a sell signal since last September even as the indices have been hitting new highs.

Sensex (27,458.6)

The Sensex hit the intra week low at 27,248 on Friday and ended on a shaky note.

The week ahead: The Sensex moved below the support at 27,800 indicated last week. But it is currently pausing just above the 200-day moving average. This is a support that many in the market will be watching. Traders holding short positions should stay on their guard as long as the index hovers above this average line.

Supports on a move below 27,200 are at 26,776 and 26,470.

A bounce from current levels can take the Sensex to 28,336, 28,820 or 29,000. Short-term outlook will turn positive only on a close above 29,000.

Medium-term trend: The Sensex has recorded a close below 28,000 affirming that the medium-term trend is on the verge of turning downward. As we have been re-iterating, one leg of the long-term bull market is in force from the August 2013 low at 17,448. This wave could have ended at 30,024 recorded on March 4.

A correction of this move can be a shallow one that makes the Sensex move between 25,000 and 30,000 for the rest of this calendar. A deeper correction will be short-lived but can pull the index below 24,000. The medium term view will turn positive only on a firm close above 29,000.

Nifty (8,341.4)

The Nifty hit the low of 8269.1 before ending the week 229 points lower.

The week ahead: The Nifty has moved below the short-term support at 8,400. Next support is at the 200-day moving average present at 8,184. Move below 8,184 can take the index to 8,065 or 7,961.

If there is a rebound in the early part of the week, the index can rise to 8,600, 8,700 or 8,800. Inability to move beyond the first hurdle will be the cue for short-term traders to initiate fresh shorts with stop-loss at 8,820.

Short-term view will turn positive on a close above 8,800.

Medium-term trend: The index has moved below 8,400. The medium-term trend is therefore at risk of reversing downward. We will however wait to see the close of this week, before confirming this view.

As discussed earlier, one leg of the long-term bull market that began from the low of 5119, recorded in August 2013 could have ended at the 9,119-peak recorded on March 4.

The corrective move that follows can drag the index lower to around 7,600. A sideways move between 7,600 and 9,000 can then follow over the rest of this calendar year.

If the correction gets deep, a fall to 7,000 or lower is possible. But such a correction can be a short one.

We will retain a negative medium-term view as long as the index trades below 8,700.

Global cues

Global markets sold off last week and most benchmark indices closed with deep losses. CBOE volatility index closed the week up almost 15 per cent as investors turned nervous about their holdings. European indices paused their recent strong uptrend. DJ Euro STOXX 50 closed around one per cent lower.

Dow Jones Industrial Average once again fell-off from the 18,000 level implying that this is turning in to a formidable resistance for the Index. The index is however above its short-term support at 17,500. The index needs to decline below this level to signal a reversal in the short-term trend.



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