Stocks meandered sideways in a contemplative mood last week. Both the Sensex and the Nifty closed the week slightly lower.
Many investors could be perched on the fence to discern the trend in corporate earnings for the December quarter before plunging in. The earnings season has started on an upbeat note with Infosys surprising investors with its cautiously optimistic guidance, sending the stock surging more than 15 per cent. Economic data, however, continue to be a dampener. Weak industrial production and export numbers dragged stock prices lower on Friday.
It was a quiet week in the global markets. Stimulus measures announced by the Japanese Government of around $116 billion aided sentiment. Both the Bank of England and European Central Bank decided to leave policy rates unchanged.
Volumes in the capital market and derivative segments were both buoyant in the later part of the week. Put call ratio close to one implies that traders are equally divided about the short-term trajectory of the market. Open interest has moved above Rs 140,000 crore as trading interest increased. Foreign institutional investors have net purchased $1.5 billion of equity and debt so far in January.
Oscillators in the daily chart are signaling a sell after displaying negative divergence in the previous week. This implies loss of momentum in the short-term and possible downward reversal. The weekly oscillators are still rising as the medium-term trend continues to be bullish.
Sensex (19,663.6)
The Sensex moved in a narrow band between 19,600 and 19,850 over the past week. While this is not a cause for worry, the fact that we have four black candlesticks last week is. That is because it signals that the indices are unable to hold on to higher levels.
Investors can watch out for the support at 19,613 and 19,463 in the week ahead. If the Sensex manages to hold above these levels, it will mean that the index can attempt to move on to 20,000 or 20,231 in the short-term.
But a decline below 19,463 will put the short-term view in jeopardy. A firm close below 19,200 is however needed to signal that the index is launching into a correction that can extend for a few weeks.
The medium-term view for the Sensex remains positive. But a five-wave move could have completed from the low at 16,598 in the index. According to this assumption, the index can correct up to 18,900 or 18,600. A sideways consolidation between 18,600 and 20,000 can then follow.
Medium-term view on the Sensex will turn negative only on close below 18,600. If the Sensex moves beyond 20,000, next medium-term target would be 20,432.
Nifty (5,951.3)
The Nifty reversed from the intra-week high of 6,042 recorded on Monday to end the week 64 points lower. The short-term down-trend is more clearly etched in the Nifty than in the Sensex and the index is expected to move lower to 5,917 or 5,841 in the sessions ahead. Short-term traders can play short in the index with stop-loss at 6,050. Move above 6,050 will turn the short-term positive again, paving the way for rally to 6,064 or 6,141.
The medium-term trend in the Nifty stays positive. But since the index appears to have completed a wave sequence at the recent peak at 6,042, the index could be readying for a medium-term correction that pulls the index down to 5,739 or 5,650 in the coming weeks. This will however be confirmed only on a strong break below 5,737.
Global cues
Global stock markets held on to their gains last week. Most indices closed near the upper end of their current trading range. CBOE volatility index declined to multi-year lows as investors turned optimistic on the partial resolution of the US’ fiscal cliff concerns. The Dow had a volatile week, declining to the intra-week low of 13,293 before moving close to 13,500. The short-term outlook for this index stays positive and the index is likely to progress towards the previous peak at 13,661. This view will be marred only on a close below 13,250. The medium-term outlook in the Dow is also positive though the index could vacillate in the zone between 12,500 and 13,500 for few more months before moving higher.
Gold is declining since the peak at $1,795 formed last October. Since this peak was formed at the key 61.8 per cent (Fibonacci) retracement of the decline from the September 2011 peak, it implies that the metal is still in a long-term corrective phase. The long-term support between $1,450 and $1,500 is however likely to support the metal in sharper declines.
The current decline is halting at the key medium-term support at $1,620. Upward reversal from these levels could take the metal to $1,734 or $1,800 again. Traders can bet on an upward reversal with stop loss at $1,620.