It has been a lovely start to autumn for the Indian stock market. The Sensex is up 1,333 points in September and the Nifty 445 points. Stocks have managed to scale the wall of worry built on high inflation, pressure on corporate top-lines, slowing industrial output et al. Investors need to thank the Indian government for its changed stance on policy implementation and the largesse of the Federal Reserve and the European Commercial Bank for powering this autumn rally.
Greece cast a pall of gloom on the global equity markets again last week. But the $58-billion liquidity injection by the Chinese Central Bank helped assuage sentiments. Indian equities began the week on a slack note but they picked up towards the weekend to close slightly in the green.
Derivative expiry on Thursday did not cause undue turbulence though derivative volumes reached record levels on Thursday. Cash volumes on the NSE also continued to be strong implying that retail investors were returning to stock markets on the sustained price rise.
With not too many events to look forward to in the week ahead, stocks could spend some more time vacillating at higher levels.
Negative divergence in momentum indicators in the daily chart implies that there could be some retraction in the short-term. Weekly oscillators are holding in the bullish zone implying that the rally could continue in the medium-term.
Sensex (18,762.7)
The Sensex hit the peak at 18,869 on Friday before giving up the gains to close with mere nine points weekly gain. The doji formation in the weekly chart denotes indecisiveness and the possibility of break in either direction.
We continue to adhere to our medium-term count. The up-move from 15,748 low appears to be the C wave of an irregular flat formation. This wave has the next target at 19,136. Since this also occurs close to the critical 61.8 per cent Fibonacci retracement of the decline from 21,108 peak, investors cannot rest easy as long as the index trades below this band (between 18,826 to 19,136).
The medium-term trend will, however, remain positive as long as the index trades above 17,700. It is possible that the index consolidates in the zone between 17,000 and 19,000 for a few months before making a dash for the 20K level.
The short-term trend is sideways in the range of 18,550 and 18,900. Sharp move beyond the upper boundary will take the index to 19,136 and 19,473. Short-term supports for the index will be at 18,240 and 17,860. Traders can stay sanguine as long as the index trades above the first support.
Nifty (5,703.3)
The Nifty too slackened in the first four sessions of the week to move up sharply towards the weekend. Our medium-term view remains the same. Target of the third wave from 4,531 trough gives us the next target of 5,870.
But on breaking down the minor waves of the up-move from 4,770 gives us a confluence of targets around 5,600. Since this also coincides with significant Fibonacci resistance, traders and investors ought to stay cautious as long as the index hovers above this level. Strong break above 5,750 will mean that the index can then go to the next target zone between 5,850 to 5,900.
The index is stuck in a sideways range of 5,640 to 5,720 in the short-term. Strong move beyond this range will take the index to 5,870 or 5,888. Short-term supports are at 5,527 and 5,406. Traders can hold their long positions as long as the index trades above the first support.
Global cues
Global benchmarks took another step lower last week. With the euphoria generated by the quantitative easing by Federal Reserve and the bond buy-back announcement by ECB fading, equity markets once again began fretting about the state of affairs in Greece. The evening star in the weekly candlestick chart of DJ Euro STOXX 50 implies that the medium-term trend in this region could be reversing lower.
As stocks retracted from higher levels, nervousness among investors increased sending the CBOE volatility rising to 17 during the week. The index will, however, have to close above 19 to indicate that the short-term trend has reversed lower.
The Dow has stepped back from the resistance zone around 13,600. Immediate supports for the index are at 13,240 and then at 13,000. Close below the second support will indicate a reversal in the medium-term uptrend. On the other hand, reversal above 13,240 will keep open the possibility of a rally to 13,778 or above.
Gold is keeping everyone guessing by hovering at the key medium-term resistance zone between $1,750 and $1,800.
The metal formed a hanging man doji in the weekly candlestick chart that does not bode well for this uptrend. The short-term trend will, however, reverse lower only when the metal closes below $1,700.