Both the Sensex and the Nifty flirted with their 200-day moving average last week and are currently hovering just above this support. The intra-day volatility witnessed over the last three trading sessions reflects the intense tussle between the bulls and the bears to wrest advantage at this juncture. The bulls need to ensure that the bastion at 20,000 in the Sensex and 5,900 in the Nifty holds. As mentioned in the previous column, breach of these supports will be detrimental to the medium-term trend. We have a slew of important data releases scheduled this week, including the headline inflation and industrial production number that will keep market participants jittery. The next batch of quarterly earnings can cause stock-specific volatility.
Market participants will also turn their attention to the vote-on-account, to be announced next Monday. The Finance Minister could bowl a googly at the market in the form of rolling back gold import restrictions or some other unpalatable populist move.
Economic data releases last week were far from comforting. Downward revision of the GDP for 2012-13 from 5 per cent to 4.5 per cent and core sector output for December 2013 at 2.1 per cent against 7.5 per cent growth a year ago dampened sentiments. The market will react to the GDP estimate for 2013-14 released after market hours on Friday. The slowdown in the manufacturing sector is likely to cause some concern. The positive cue on Monday morning will the weak US jobs data released on Friday. US investors were cheered by the numbers as it implies that the Federal Reserve may rethink its decision to push forward with its taper schedule.
Oscillators in the daily chart are moving sideways in the oversold area while weekly oscillators are just threatening to move into the bearish zone. This implies that a rebound is possible in the short-term, but the medium-term trend is currently at risk of reversing lower.
Sensex (20,376.5)
The Sensex hit the intra-week low of 19,963 before reversing higher with a hammer pattern on the weekly candlestick chart. This pattern signals short-term buying interest.
The week ahead: As explained above, the reversal in the later part of last week is not convincing enough. The index faces immediate resistance at 20,516. Inability to move above this level will pull the index lower to 20,000 again. This level will once again act as a buttress.
But a move below 20,000 can pull the index to 19,606 and 19,470.
Resistances above 20,516 are at 20,682 and 20,858. The index might not be able to move above 20,858 just yet.
Medium term view: As we keep reiterating, the Sensex is moving in a range between 20,000 and 21,500 over the medium term. If the index manages to hold the lower end of this band, it will be a positive and will keep open the possibility of a break higher to 22,500 in the later part of the year.
But the medium-term view will turn cloudy if 20,000 is breached. That will mean the index is moving down to 19,000 or lower.
It is the 19,000 level that long-term investors need to concern themselves with. Breach of this level will mean that there is a lot of pain in the offing.
Nifty (6,063.2)
The Nifty, too, bounced after hitting the intra-week low at 5,933. But the intra-day volatility in the last three sessions implies that neither the bulls nor the bears have the upper hand at this juncture.
The week ahead: Short-term traders need to tread cautiously since the Nifty is pausing just below the short-term resistance at 6,086. Struggle to move above this level will be the cue for short-term traders to go short with stop-loss at 6,150. Downward targets are 5,933 and 5,837.
If the index gets past 6,086, the next target is 6,200. The 50-DMA present at this juncture will also be quite difficult to get past in the near term. The short-term trend will turn positive on a strong close above 6,200.
Medium-term trend: The Nifty is reversing higher after testing the lower end of its medium-term trading range. As mentioned earlier in this column, continued movement in the band between 5,900 and 6,400 will keep open the possibility of a break higher to 6,734 in the months ahead.
But downward targets on breach of 5,900 are 5,769 and 5,617.
Key long-term support for Nifty is 5,700.
Global cues
Global indices did not lose further ground last week. The CBOE volatility index declined sharply on the last two sessions of the week in line with the upward reversal in the equity markets in the US. The DJ Euro STOXX 50 is declining from key long-term hurdle around 3,000. But we need to see a close below 2,750 in this index to signal a medium-term trend reversal.
The Dow Jones Industrial Average tested the support at 15,445 indicated in this column last week, to record the intra-week low of 15,340 before recording a sharp reversal. Immediate resistances for the index are at 15,800 and then at 16,100. Reversal from either of these levels will mean that the index will head lower in the weeks to come.