The markets had enough to worry about over the past week. Persisting worries about the euro debt, high inflation and slowing domestic economy, the unchecked fall in the rupee and discouraging quarterly results all triggered enough fear in investors and allowed bears to gain control over the markets.
Though there were marginally positive developments in the US such as a lower jobless benefit claim and permits for future home construction, the markets were bent on agonising over the euro debt issues.
Surge in crude oil price above the psychological mark of $100 on Wednesday attracted investor attention. It, however, ended at $97.4 a barrel after marking an intra-week high at $103.3. The rupee's depreciation to a 32-month low against the dollar also impacted markets. It closed at Rs 51.34, losing 2.4 per cent over the week.
Both investors as well as traders turned pessimists hammering down the BSE Midcap and Smallcap indices by 7.3 per cent and 8.6 per cent respectively.
Daily oscillators of both the Sensex and the Nifty continued to decline and have entered in to the negative zone implying that the short-term uptrend has revised downwards. The weekly oscillators also dropped and are on the brink of entering the negative terrain. Any further fall will however, pull them in to bearish zone in the upcoming week. This will imply that the medium-term trend would be reversing lower. The 10-day rate-of-change oscillator has been featuring in the negative territory while the weekly oscillator has entered this territory, signalling weakness.
Monthly oscillator is hovering in the negative zone. Volumes picked up both in cash and derivative segments as the market volatility could have prompted traders to take more trade positions. If the volatility continues in the derivative expiry week coming ahead, the volumes can pick up further.
Sensex (16,371.5)
After moving higher to an intra-week high of 17391, the Sensex lost grip and tumbled steeply to an intra-week low of 16,164. It lost 821 points or 4.8 per cent last week. However, short-covering on Friday helped the index gain 206 points from its intra-week low. It formed a hammer pattern in the daily candlestick chart on Friday implying near-term bullishness, however for confirmation of this pattern, the Sensex needs to close on a positive note early coming week.
Reversing lower, the index has signalled its inability to exceed above the significant medium-term resistance in the zone between 18,000 and 18,200.
This zone happens to be the 38.2 per cent retracement level of the decline from the high of 21,108. With the last week's steep fall, the index appears to have resumed its down trend that started from the aforementioned high and has not yet finished its course.
The Sensex breached its key support zone between 17,000 and 17,200 and tumbled down breaching subsequent levels at 16,827 and 16,580. It is, however, hovering above a key support band between 16,000 and 16,140 that could cushion the index in the ensuing week.
An upward reversal will encounter resistance at 16,580 initially. Strong move above this level will take the index higher to test next resistance at 16,827 and then to the zone between 17,000 and 17,200. The latter is a vital zone of resistance.
On the other hand, a plunge below the 16,000-support can pull the index down to October 4 low of 15745 or further down to 15,453. Subsequent key medium-term supports are at 14,577 and 13,036.
Nifty (4,905.8)
The Nifty plummeted 263 points or 5.1 per cent in the previous week. The index is hovering well below its 21- and 50-day moving averages. However, on Friday, it recovered smartly helped by short covering and formed a hammer candlestick pattern.
The index breached its key support at 5,150 and continued its down-move penetrating other supports at 5,066 and 4,987. Nevertheless, it is hovering above a key support band between 4,800 and 4,850 which could provide base in the week ahead.
Upward reversal from the support zone will cause the index to face resistance at the 4,987-5,000-band and thereafter at 5,066. Next significant resistance to watch out for is at 5,150. Supports below 4,800 are pegged at 4,750 and 4,700.
As the index is reversing lower from the trend-deciding level of 5,400, it may now test its important support at 4,700 in the medium-term.
Next key supports below 4,700 are at 4,636 and 4,573.
Global Notes
The Dow retreated almost 3 per cent in the previous week, whereas S&P 500 and Nasdaq declined 3.8 and 4 per cent respectively.
Dow continued to fluctuate in the range between 11,700 and 12,200 with negative bias. Supports for the week are at 11,650 and 11,250.
Key resistance levels are pegged at 11,935 and 12,200. FTSE 100 slipped 3.3 per cent, DAX fell 4.2 per cent and CAC dropped 4.8 per cent in the week gone by.
The dollar index that tracks the movement of the greenback against a basket of currencies climbed 1.4 per cent in the previous week and is currently testing key resistance level of 78.5.
Strong break-through of this resistance will lift the dollar index higher to 79.5 and then to 80.1 level. Inability to surpass will drag the index down to 77 and then to 76.3.