The week began with an inexplicable burst of buying on Monday. Stocks managed to hang onto higher levels in the following sessions despite the RBI’s gloomy prognosis on the economy in the monetary policy and drought in many regions of the country.
The US Federal Reserve and European Central Bank also refused to pander to investors’ expectations. But the benchmarks did not react too adversely to this stance and the Sensex ended the week 359 points higher. Gain in the Nifty was 116 points.
Resilience of stock prices to the slew of adverse developments means that the stock prices have reached a saturation point as far as their ability to absorb further bad news goes. Clearly, the path of least resistance is now upward.
Investors continued their indifferent attitude to stocks resulting in lacklustre volumes in both the cash and derivative segment. FIIs were net buyers in most sessions. Investors will look closely at the next batch of quarterly earnings to decide about stock-specific strategy.
Rain clouds will also do their bit to cheer or dampen the market mood.
Weekly oscillators are beginning to turn positive indicating that the medium-term trend could be on the verge of reversing higher. Weekly rate of change oscillator has moved above the zero line and the weekly relative strength index is also in the bullish zone after displaying positive divergence. Daily oscillators are also beginning to move up.
The Sensex has moved in a 1,000-point range between 16,500 and 17,500 in July and ended with a star formation with a long lower shadow. It is also interesting to note that the Sensex recovered from intra-day lows to close near the day’s high on both Thursday as well as Friday. This denotes demand for stocks at lower levels.
Sensex (17,197.1)
The short-term trend is looking more promising after last Monday’s rally. The count that we are right now following is that a corrective sideways consolidation is in motion since the December low of 15,135 in the Sensex. Third leg of this move that is currently in motion has the targets of 17,842 and then 19,136.
It is possible that this leg further sub-divides into three smaller parts. The Sensex could then be expected to rise to 17,761 or 18,480 in the weeks ahead. We will retain a positive medium-term view unless the index goes on to close below 16,467.
Strong close below this level will mean that the third leg has ended at 17,631. Downward targets in this scenario would be 15,916 and 14,857.
The short-term trend in the Sensex is up. That the index bounced above its 50 and 200 day moving averages is also a positive. It can now attempt to move to 17,595 or 17,719 in the days ahead. Short-term trend will turn negative on a close below 16,870.
Nifty (5,215.7)
The Nifty too is in a short-term uptrend since the trough of 5,032 formed on July 26. Traders can hold their long positions as long as the index trades above 5,113.
Reversal from the current levels can take the index higher to 5,296, 5,378 or 5,516 in the days ahead.
But a close below 5,113 will mean that the index can lose further ground sliding to 5,049 or 4,928 in the upcoming sessions.
The medium-term trend in the index is sideways. Movement last week suggests that the C wave of the consolidation phase that began at 4,770 can further sub-divide into smaller waves. Minor C of this wave can take the Nifty higher to 5,389 or 5,610 in the weeks ahead.
But close below 5,100 will imply that the C wave has ended at 5,348 and the long-term down trend has now resumed.
Global benchmarks managed to move slightly higher last week despite both the Federal Reserve and the ECB disappointing investors. European indices including the CAC, DAX and the FTSE closed around 3 per cent higher last week.
CBOE Volatility index declined further to 15.6 to close at the lowest level since this March.
The Dow closed in the red in the first four sessions of the week. But it made up on Friday as strong jobs data helped the index close 218 points higher with a giant bullish engulfing pattern in the daily chart.
This maintains the sequence of higher troughs since June low of 12,452.
We maintain the short-term target at 13,338 for the index. Medium-term targets remain at 13,848 and 14,198. Close below 12,700 is required to reverse the positive short-term view in this index.
Nymex light crude is moving higher once again after testing the support zone between $75 and $78. It could now move towards the $100 or even $115 mark again.
The point of concern is that a three-wave correction appears to have been completed at $77 on June 29. If the third leg of the move from 2009-low takes off, it can lift crude prices towards $147 again.