Market players appeared content sitting on the fence to wait for the corporate earnings parade and monetary policy last week. Volumes were bleak and benchmarks whipsawed within a very narrow band. It was Infosys' weak earnings that finally pulled the rug from under the market's feet on Friday, leading to both the Sensex and the Nifty closing around 2 per cent lower.
Global environment was benign for most part but contraction in Chinese GDP growth to 8.1 per cent in March quarter caused a sell-off on Friday. Wednesday's earthquake and the tsunami alert in major coastal cities in India put the fear of God in all of us. Weak industrial production data and the accompanying downward revision for prior month numbers was the other disturbing factor.
Derivative volumes were lacklustre in the initial part of the week but spiked on Friday when stocks nose-dived. Cash volumes, too, increased in the later part of the week. FIIs were net buyers on Monday but sold slightly thereafter. Despite April being a very volatile month, FIIs have net purchased $154 million in this period. Their net purchase for this calendar stands at $8.7 billion.
Open interest is quite low around Rs 1,00,000 crore implying that traders are still undecided on the market's direction. The week ahead will be the real test of market's resilience as the RBI unveils its monetary policy on Tuesday. Corporate earnings will also be keenly scrutinised.
Momentum indicators in the daily chart continue to trudge sideways implying that last week's move has not dented the short-term trend. Weekly oscillators have, however, moved slightly in to negative zone. This lackadaisical movement over the past few weeks is beginning to wear down the medium-term view.
The choppy movement witnessed since the February 22 peak in both the Sensex and the Nifty is more like a counter-move or a correction than an impulse wave. The entire move could be evolving in to a triangle or a double three. Problem with sideways moves are that the pattern is apparent only after the move is complete.
If we look at it from classic patterns viewpoint, a falling wedge appears to be forming since the February peak that is a bullish pattern. The index could move around 17,000 for a few more weeks as this pattern completes. Fibonacci time lines indicate that this corrective move can complete towards the end of April. Strong close above 17,600 will be the first signal of a break-out of this pattern.
Sensex (17,094.5)
The Sensex fluctuated in the band between 17,000 and 17,400 last week before closing at the lower end of the band. It closed the week just above its 200 day moving average at 17,090. The Sensex has once more moved close to its support at 17,000. As explained earlier, the Fibonacci retracement of the up-move from 15,135 gives us the supports of 17,228, 16,829 and 16,429. Investors need to start worrying only if the index goes on to close firmly below 16,429.
Extrapolation of the down-move from 18,523 peak gives us the targets of 17,103 and 16,525. The index is currently attempting to hold at the first target. Wave pattern of the move from 18,523 peak also suggests that the decline could lose its intensity from current levels. But if a deep fall occurs, the index could attempt to form a trough around 16,500 in the upcoming months.
Conversely, medium term view will be deemed bullish if the Sensex manages to hold above 17,000. Minimum upward target in this scenario is 19,100.
There is a cluster of supports just below the place where the Sensex is currently placed. The index will get support at 16,920 and 16,829 in the upcoming week. Breach of these levels will bring the support at 16,500 in to play.
Key short-term resistances will be at 17,608 where the 50 day moving average is also placed. Next hurdles will be at 17,781 and 17,946.
Nifty (5,207.4)
The Nifty is also vacillating in a sideways band between 5,200 and 5,300 over the past week. Fibonacci supports for the index if we retrace the move from 4,531 low give us the supports at 5,210, 5,080 and 4,950.
The index is currently attempting to hold at the first level. If it manages to hold above 5,200, it will be bullish from a medium-term perspective. That will imply that the rally from 4,531 will unfold yet another leg that can take the index up to 5,829 (minimum target) in the medium-term.
Extrapolation of the down-move from 5,630 gives us the targets of 5,216 and then 5,041. Again we can see that there is a possibility of this correction ending at current levels. If the index breaks down strongly below 5,200, next target will be around 5,000.
In the near-term, the index has strong support at 5,136 that was the previous trough and the 200 DMA is also positioned here. Traders can watch out for a bounce from these levels.
Breach of this level can pull the Nifty down to 5,119 or 5,002. Primary short-term resistance will be in the zone between 5,320 and 5,340. The presence of 50 DMA at this junction can thwart up-moves. If the index rises further, the hurdles will be at 5,385 and 5,445.
Global Cues
Stocks continued sliding last week and many of the global benchmarks have confirmed a short-term downtrend. The week started with investors getting jittery over US jobs data and Spain. The mid-week recovery was stalled by slowing economic growth in China.
The Dow moved below the 13,000 mark to close at 12,849 for the week. As explained earlier, the index was in the range between 13,000 and 13,300 over the past week. Close below 13,000 signals the onset of a short-term downtrend in the index. Initial support will be at 12,730 and then at 12,500. The medium-term view will turn negative only if the index goes on to close below 12,500.