Index Outlook: Markets raring to go higher

The Sensex and the Nifty moved out of their tight band last week. But only just. While investors should not start exulting yet, it is positive for the short term. Traders can look forward to the Sensex reaching towards the 29,000 peak and the Nifty moving to 8,700.

Central bankers, in their attempts to help their respective economies, continued to inadvertently support stock markets. Global equity markets that were beginning to wilt, got yet another shot in the arm, this time from the Chinese central bank.

Worried about falling industrial production, weak real estate market and dismal third quarter GDP growth, the Chinese central bank reduced interest rate on Friday, the first time in two years.

Mario Draghi contributed his bit to improve market sentiments by announcing that he is determined to do “what he must, to raise inflation and inflation expectations as fast as possible.” This central banker-speak took US benchmarks to record highs on Friday.

The feeble memory of markets is reflected in the ease with which the failing of yet another central banker — the one in Japan —was shrugged aside.

As long as money keeps flowing in, investors aren’t complaining.

The limelight will be on our central banker, Raghuram Rajan, this week as the RBI monetary policy is scheduled in the week after that.

The third quarter GDP data set for release towards the end of the week will, therefore, be of great interest to those obsessed with second-guessing RBI’s next move.

The expiry of the November derivative contracts will also influence the movement of stock prices this week. Nifty put call ratio above one implies that there could be a rally if short-squeeze takes place.

Open interest on the National Stock Exchange is also climbing to uncomfortable levels above ₹240,000 crore.

Action of foreign investors last week was interesting. Their net purchases have shrunk significantly and they have even been net sellers in some sessions.

This shows that global investors are getting restive with the continued sideways move.

Momentum indicators in the daily chart are weak. The price rate of change oscillator in the daily chart is dipping while the moving average convergence divergence oscillator is on the verge of signalling a sell.

Weekly oscillators are moving sideways. The price rate of change oscillator hovers in the neutral region. This implies that the medium-term trend is on the verge of reversing lower.

The Sensex moved sideways with an upward bias last week.

The week ahead: While there hasn’t been a significant breakout, the pattern on the daily chart now resembles a running correction. Traders would do well to take bullish bets and wait for yet another leg of the up-move.

The Sensex could move higher to 28,717 or 29,070 in the near term. Traders can play for these targets with a stop-loss at 27,760.

Supports for the week ahead are at 27,760, 27,430 and 26,845. The short-term view will turn murky only on a close below 27,430.

Medium-term trend: The Sensex is still placed at a critical medium-term resistance zone. Caution is required as long as the index does not make a sharp break above 28,500. If it does so, the next target is at 29,694.

The Nifty too closed on a strong note on Friday.

The week ahead: The movement over the last couple of weeks is increasingly appearing to be a consolidation pattern in an uptrend. Short-term traders can play long with a stop-loss at 8,300.

The index can move higher to 8,598 or 8,749.

Supports next week will be available at 8,200, 8,100 and 8,000. Wait for a close below 8,200 before reversing your short-term view.

Medium-term trend: We had mentioned the resistance in the zone of 8,400 and 8,450 in our last column.

The Nifty has managed to move above the upper band of this range, but the breakout is not emphatic.

If the index manages to hold above 8,450 this week, it can attempt to move on to 8,892.

Global indices moved higher last week, reversing their short-term downtrends. The strong rally on Friday helped the US and European indices close with strong gains. Volatility also declined last week with the CBOE volatility index declining close to 12.

The chart pattern in the Dow Jones Industrial Average indicates bullish momentum. There is a running correction forming over the last three weeks.

Break from this correction can take the index higher to 18,550 or 19,139. The short-term view will stay positive as long as the index trades above 17,350.

The Nikkei was volatile but managed to close at the upper end of its current trading band at 17,350.

The strength in the dollar index is a negative for riskier asset classes such as equity in emerging markets.