Pandemonium ruled in equity markets last week with the Sensex losing 691 points and the Nifty closing 221 points lower. The week started on a jittery note with the Cyprus government mulling ways to tax its bank deposit holders in the process of seeking bailout funds from European Union and IMF.
The RBI presented a very innocuous monetary policy on Tuesday, reducing the repo rate by the much-demanded 25 basis points. But market participants shrugged this move aside and instead decided that it was time to flee stock market since the DMK had pulled out of the ruling coalition Government.
The floor seemed to cave in on Tuesday as stock prices hurtled lower. The Sensex lost 285 points and the Nifty lost 89 points in that session. The slide continued thereafter as the long positions built in anticipation of largesse from the RBI had to be unwound.
Volumes spiked higher last week. NSE derivative volumes were at record highs. Index put call ratio declining below 1 indicates that many traders have reduced their short positions. Amid this bedlam, one positive takeaway from last week’s trade is that FIIs were net buyers in most sessions.
We are in for interesting times next week too. The stock market is closed on Wednesday and Friday for Holi and Good Friday. The derivative expiry scheduled for Thursday will ensure that there is downward pressure on stock prices. Cyprus has to raise €5.8 billion by Monday to get aid of €10 billion from European Union and IMF. Whether it is able to do that will dictate the proceedings in the international arena. Last week’s sell-off has made oscillators in the daily chart decline deep into oversold area. But there is no sign of reversal yet. Of concern is the deterioration in weekly momentum with the weekly relative strength index declining below 50 and the weekly rate of change oscillator declining below zero. The weekly close below the previous trough is a negative for both Sensex and the Nifty.
Sensex (18,735.6)
The movement of the Sensex was much more decisive last week. There is now no doubt that the third part of the down-move from 20,203 peak is currently unfolding. As explained earlier, this wave has the targets of 18,814, 18,263 and 17,711.
The first target has been achieved and the Sensex is now poised close to the prior trough at 18,760. If we consider the retracement supports for the up-move from 15,748 low, immediate supports are 18,866 and then 18,500.
In other words, Sensex is at a good support level. But the momentum of the ongoing fall compounded with the derivative expiry scheduled for next week can drag the index down to the next downward target between 18,250 and 18,500.
We stay with the view that the medium-term view for the index will stay positive as long as it trades above 18,500.
Sensex can face resistance at 19,100 and 19,265 next week. The index needs to move above 19,754 to make the short-term view positive.
Nifty (5,651.3)
Nifty too lost 221 points last week to hit the intra-week low of 5,631. It is now clear that the third leg of the move from 6,112-peak is unfolding. This wave has already achieved its first target of 5,693. But the weak close on Friday denotes that the index can slip further towards the next target at 5,522. Since this level also coincides with the trough formed last November, investors can look forward to the area between 5,500 and 5,550 as the next downward target in the short-term.
Any pullback will face resistance at 5,760 and 5,841. Traders can play short as long as the index trades below the first hurdle. The short-term trend will, however, stay downward as long as the index trades below 5,930.
The medium-term trend in the index remains up. This view will be threatened only on a strong weekly close below 5,600. Upward reversal from this zone will imply that the index could oscillate between 5,600 and 6,200 for a few more months, or may be the rest of this year. Medium-term targets below 5,600 are 5,440 and 5,282.
Global cues
It was the Cyprus crisis that dominated proceeding in global stock markets last week. Most global indices began the week on a shaky note and kept sliding through the week. CBOE volatility index spiked above 15 mid-week before closing at 13.5 as panic spiked.
The Dow managed to put up a relatively resilient show, moving in a band between 14,400 and 14,500. The short-term trend, therefore, remains up for this index. Short-term trend deciding level that investors need to watch out for is at 14,250.
We stay with the medium-term targets at 15,400 or 15,700 if the Dow continues its up-move.
Of concern is the sharp sell-off seen in benchmarks of emerging Asia that had had a splendid run so far this year. Thailand’ SET, Jakarta Composite Index, Philippines Composite Index and so on appear to have launched a medium-term corrective phase last week.
Gold continued its rally for second consecutive week.
As we have been reiterating, the yellow metal has support in the area between $1,450 and $1,550. It can reverse from this base and move once more to the zone between $1,650 and $1,680. Strong close above $1,680 is needed to signal that the medium-term trend has reversed upward.