Technical Analysis

Market to meander sideways

Lokeshwarri SK | Updated on March 08, 2018 Published on December 07, 2014

With many large investors away on a year-end break, sharp moves are unlikely in December



Indian equities put up a subdued show last week. The Sensex and the Nifty remained shackled in a narrow range and ended the week marginally lower.

Investors who felt let down by the RBI Governor not lowering policy rates in the monetary policy were consoled by his statement that he will consider cutting rates early next year and that this could even happen outside the monetary policy cycle. It implies that we could have sudden rate cut sprung on us, if inflation stays benign.

With the monetary policy now done with, the market has few triggers to take it higher from these levels, at least in the short term. We are also in the month of December, when the holiday mood pervades investors, who are too tired to even work up the energy to go on a selling spree.

Neither rallies nor declines have too much momentum in this month, as many large institutions go on a year-end break and others are more interested in preserving the profits made during the year.

This mood was reflected in last week’s trade, when the indices closed lower in four out of five sessions, but the decline wasn’t deep enough to cause any concern. Lack of momentum can make the front-line indices drift lower in the near term. But there will not be any cause for concern unless the Sensex closes below 27,500 and the Nifty below 8,200.

We have a data-heavy week coming up, with industrial production and consumer price inflation numbers set to be released next week.

The Winter Session of Parliament and the passage of important bills such as the Insurance Bill will also keep investors riveted.

Movement of crude prices and the progress of the North-East monsoon will be other data that will be watched. Crude is attempting to stabilise around the $64-support indicated in this column last week. There is a high probability of a base formation around this level.

Momentum continues to slacken in the daily chart. This is reflected in the sell signal generated in the momentum indicators in the daily chart, such as the daily moving average convergence divergence indicator. But the fact that this indicator is still featuring in the overbought zone implies that the short-term trend has not reversed lower yet.

Weekly oscillators, however, continue to be positive, signalling a very strong medium-term trend. Oscillators in the monthly chart are also showing strong upward traction.

Sensex (28,458.1)

The Sensex remained in a narrow 500-point range last week.

The week ahead: We stay with the view elaborated in our last column. This could be the final leg of the move from October 17 low. The targets for this move are 28,701, 29,047 and then 29,187.

The first target has been achieved and the index is currently struggling to move past 28,800. If it manages that, then the next two levels will come into play.

Sell signals in short-term oscillators are signalling a possible extension of the correction in the short term. Supports in that event are at 28,184 and 27,753. Short-term traders can continue to buy in declines as long as the first support holds.

Medium-term trend: There is no alteration in the medium-term trend too. We could be nearing the end of the wave that began from the August 2013 low. The targets for this move fall between 28,270 and 29,717.

Since the first target has already been achieved, caution is advisable. But a reversal is possible anytime from this point. Key medium-term support is at 27,500.

Nifty (8,538.3)

The Nifty too was stuck in a narrow 100-point range last week.

The week ahead: The deterioration in momentum continues to signal caution. But the wave pattern signals the possibility of yet another lurch upward. This can take the Nifty to 8,682 or 8,793. Traders can continue to buy in dips as long as the index trades above 8,420. If this level is breached, the next supports are at 8,300 and 8,200.

Medium-term trend: We continue to advise caution from a medium-term view. The trend-following indicators continue to be strong. But we are close to critical medium-term targets.

The market could move sideways in December between 8,300 and 8,700 in December in a rounding top distribution pattern before a sell-off in January. A sharp move beyond 8,800 is needed to signal that the Nifty is moving towards 9,026 and 9,541.

Global cues

Global indices put up a mixed show last week. While European and US markets continued to hit new highs, some markets with larger weights assigned to commodity stocks, such as Brazil and Russia, recorded steep declines.

Strong US jobs numbers — with unemployment at a six-year low of 5.8 per cent and the strongest addition to jobs since January 2012 in November — pleased US investors, lifting US benchmarks to yet another record high.

The Dow has now moved close to the 18,000-mark. If this rally continues, the index will be on course to hit the next target of 18,550. Supports for the index stay at 16,652 and 16,000.

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