Investors had no reprieve from market volatility in the holiday-laden week gone by. Italy was the cynosure of all eyes in the first half with Italian bond yields spiralling to uncomfortable levels, sending equity markets crashing. Domestic worries took centre-stage on Friday with slowing industrial production socking stock prices.

Other sidelights of the week were the two differing opinion on Indian banks given by Standard and Poor and Moody's, that left investors scratching their heads and the rupee diving below the 50 mark against dollar.

Both investors and traders appeared disinterested in last week's trading and this is reflected in the low trading volumes in both cash and derivative segment. FIIs did not seem too perturbed and were net buyers in some sessions according to data released by BSE. Open interest edged up slightly to Rs 1,25,000 crore.

As the earnings season taper to an end, global events will continue to dictate the trend in our market. The headline inflation numbers due next week will be closely watched to see if it can impact future policy rate decision.

Oscillators in the daily chart of both the Sensex and the Nifty continue to droop but they are still in positive terrain implying that the short-term trend continues to be up. Any further decline will however pull them in to bearish zone reversing the short-term uptrend. Weekly oscillators are also showing signs of fatigue after moving in to bullish zone in the last week of October.

Sensex (17,192.8)

The short week saw the Sensex reverse from 17,658 to hit an intra-week low at 17,096. As we have been explaining in our earlier columns, the index has critical medium-term resistance in the zone between 18,000 and 18,200. This occurs at 38.2 per cent retracement of the slide from the 21,108 peak. Presence of the 200-day moving average at this zone makes it a formidable short-term hurdle.

Inability to move above this zone will mean that the bears continue to have the upper hand. It will also mean that the down-move that commenced from the 21,108 peak has not yet run its course and the index could plunge to 16,000 again in the ensuing months.

This risk of a sharp decline will however be mitigated if the index moves above 18,200. Subsequent targets are 18,700 and 19,036. A move to these levels will mean that the movement for the rest of the year will be a more benign one between 17,000 and 19,000. It is hard to envisage a move beyond 19,000 this calendar.

Sensex has moved to the key short-term support zone between 17,000 and 17,200. If it manages an upward reversal from these levels, the index can move higher to 17,600 and 17,908 in the days ahead.

If it pauses in the zone between 17,900 and 18,000, it will mean consolidation in the range between 17,000 and 18,000 for few more weeks. This will be positive from a medium-term perspective. Targets on a move above 18,000 are 18,432 and 18,700.

Close below 17,000 will open the path to a decline to 16,827 and 16,580.

Nifty (5,168.8)

The Nifty too reversed lower from the peak of 5,317 to hit Friday's low at 5,142. We adhere to the view that the area around 5,400 is the medium-term trend decider for Nifty.

Inability to move above this level will mean that the downtrend that began from 6,338 peak continues to be in force. If yet another wave downward of this down-trend unfolds, it can wreak havoc on stock prices, pulling Nifty lower to 4,700 or even 4,400.

Conversely, strong close above 5,400 will mitigate the downward risk greatly and pave the way for a rally to 5,532 or 5,720 in the upcoming months. The medium-term range of the Nifty, in such a case, will widen to a range of 4,800-5,700.

For the week ahead, traders need to watch the support zone between 5,150 and 5,170 for any sharp rebounds. Upper targets for such moves will be 5,300 and then 5,400.

The index could struggle to move above 5,400 and traders holding long positions should be watchful around this area. Targets above 5,400 are 5,557 and 5,610.

Supports below 5,150 are 5,066 and 4,987.

Global Cues

It was a very turbulent week in global equity markets but most benchmarks managed to close with slight losses. The DJ Euro STOXX 50 closed 1.4 per cent higher as Greece chose a new Prime Minister, Mr Lucas Papademos and Italy seemed ready to receive one tranche of bail-out money.

The CBOE volatility index also moved in a wide band between 27 and 36 before closing almost unchanged. The VIX is hovering just above the short-term trend deciding level at 28 over the last four weeks. As explained earlier, the index needs to close below this level to indicate that investors' jitters are ebbing.

The Dow vacillated in the range between 11,700 and 12,200, biding its time at higher levels. Short-term supports to watch for are at 11,650 and 11,250. If the index holds above the first support, it will imply a possible break higher to 11,750 or 12,870 in the days ahead. Short-term view will be marred only on a close below the second support.

The dollar index that tracks the movement of the greenback against a basket of currencies spiked to 78.4 mid-week but declined thereafter.

Failure to move above 78.5 denotes that the short-term trend in the greenback continues to be down and the dollar index can decline further to 76 or 75 in the days ahead. That would be good for asset classes such as emerging market equities.

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