Index outlook: All eyes on Greece

There appears to be no end in sight to the Greek soap opera unfolding in financial markets. Greece’s Prime Minister Alexis Tsipras has now called for a referendum on July 5 to vote on accepting the austerity measures being imposed by the creditors, prolonging the suspense for one more week.

With surveys conducted so far indicating that more than half the Greek population wants to stay in the Euro Zone, it could be this referendum that finally brings this drama to a close — with Greece kowtowing to the creditor’s demands.

Surprisingly equity market indices are also signalling that a Grexit could be the best option for both the Euro Zone as well as Greece.

European indices such as CAC and the DAX closed around 3 per cent higher while the Greece General All share index gained almost 16 per cent.

IMF and the other creditors of Greece should heed these indicators and allow Greece to exit the Euro Zone.

But the latest announcement means that equity market will not be able to move decisively in any direction next week.

Stocks could tread water, moving sideways in the coming week as they await the outcome of the referendum.

Even if Greece defaults, it is the currency market that is likely to witness greater turbulence.

The rupee has been stuck in a narrow range between 63 and 64.6 since end-April.

A yank to the 65-66 zone could happen if there is a largescale pull-out of FPI funds from the debt market. But the damage will most likely be arrested there. FPIs started buying stocks and debt last week, implying that they aren’t too worried about rupee weakness.

The other factor that market is currently obsessed with — monsoon — has performed far beyond expectation so far, the cumulative rainfall received up to June 24 being 24 per cent above normal.

These numbers will cushion Indian market even if a decline starts in the rest of the global markets.

As the first quarter earnings season will begin in a couple of weeks, investors will turn their attention to corporate earnings again. The health of manufacturing as indicated by the HSBC PMI index will also be revealed next week.

The Nifty is hovering around the 200-DMA over the last three sessions. The momentum indicators in the daily chart are also signalling a deterioration in the bullish momentum over the short term. The weekly oscillator chart implies that the medium-term trend has reversed lower.

The weekly rate of change chart is, however, just below the zero line on the verge of crossing over to the bullish zone.

The medium-term trend can be salvaged if it manages that feat. For that to happen, we need a strong move above the 8,400 level in the Nifty this week.

The weakening of the long-term oscillators is, however, a cause for worry.

There is a sell signal in the monthly MACD chart and the monthly ROC is moving towards the zero line in the positive zone.

The Nifty gained over 156 points over the past week and has reached the critical resistance indicated in our last column.

The week ahead : The Nifty rose to 8,421 on Wednesday and spent the rest of the week in a narrow band.

The short-term trend for the index is positive. But as explained earlier, the index has strong resistance in the zone around 8,400.

This is because a) the 200-DMA is positioned there and b) 38.2 per cent retracement of the decline from 9,119 zone occurs there. The short-term view is ambivalent. So, here are the guide-posts for what can happen next week. If the Nifty manages to move higher next week, it can go on to 8,525 and 8,666.

Reversal from these levels will pull the index down to 8,249 or 8,137. Short-term investors can buy in declines as long as the index trades above 8,249.

Sideways move between 8,200 and 8,500 will imply that the index can move up in one more spurt before the rally runs out of steam.

Medium-term trend : We stay with the view that the rally needs to move above 8,670 to signal that the medium-term trend has reversed higher. If the ongoing recovery fails around current levels, below 8,500, it will imply that the next leg down from the 9,119-peak has resumed.

The Sensex too is finding it difficult to move past the critical short-term hurdle at 27,720 — indicated last week.

The week ahead : The short-term trend in the Sensex is up. If it manages to move above 27,800, next targets for the index are 28,189 and 28,595.

The medium-term trend in the Sensex will, however, turn positive only if it manages to close above 28,595. Immediate supports for the Sensex are at 27,326 and 26,928. Short-term investors can buy in declines as long as the index moves above the first support.

Most global indices managed to close the week with smart gains.

The Dow remained in a narrow band between 17,890 and 18,188. The index has been in a narrow range between 17,500 and 18,300 over the past few weeks.

The possibility of a break above the upper boundary remains open as long as the index trades above 17,500.