Markets continued climbing the wall of worry and the Sensex and the Nifty etched yet another 2 per cent gain last week. It would surprise most to know that the Sensex is up 13 per cent and the Nifty has gained 15 per cent so far this year.
There is, however, no denying that it is clutching at straws to keep up the spirits. Last week, it was the hope that the new Finance Minister P Chidambaram would expedite policy reforms and reconsider the anti-tax avoidance laws that spurred stock prices forward.
Weak industrial production numbers and the rumblings from Europe notwithstanding, the Sensex managed to close above the 17,500 mark while the Nifty closed above 5,300.
According to data disseminated by the Bombay Stock Exchange, foreign institutional investors have been net buyers in every session since the beginning of this month.
On the other hand, domestic institutional investors were net sellers in the same period. Turnover in the cash segment was stronger in the second half of the week. Open interest is moving higher on NSE denoting that trading interest is reviving.
Market players will take the day off on Wednesday to celebrate India’s 66th Independence Day. The truncated week could find investors riveted on earnings as Tata Steel, Reliance Industries, Coal India and other behemoths line up to unveil their quarterly performance.
Oscillators in the daily chart remained in the bullish zone. What is more heartening is the weekly rate of change oscillator moving above the zero line and holding there. Weekly moving average convergence divergence oscillator is also attempting to hold just above the zero line. This signals that the medium-term trend could be on the verge of reversing higher.
Sensex (17,557.7)
The Sensex climbed higher last week to achieve our short-term target at 17,595. The short-term uptrend from the 16,598 low is the third leg of the move that is on since April.
This wave has the targets of 17,761 and then 18,481. Since the second target coincides with the February peak of 18,523, it is possible that this wave extends to that high.
Presence of long-term resistance at 18,826 (61.8 per cent retracement of the previous down-move) is also a formidable hurdle for this rally. We will continue to hold a positive medium-term view as long as the index trades above 16,467.
The short-term trend is currently up. But since a three-wave move was completed last week, there can be a minor pull-back to 17,295 or 17,028 in the week ahead.
Investors with short-term perspective can buy on declines as long as the index trades above 17,000. Presence of the 50 and 200 DMAs at this level adds to its significance.
Short-term targets on break above 17,726 are 18,168 and 18,481.
The Nifty (5,320.4) too is in a short-term uptrend since the trough at 5,032 formed on July 26. There could be a mild pull-back in the days ahead to 5,260 or 5,188. Short-term traders can hold their long positions as long as the index trades above the second support.
Short-term targets for the index are 5,377, 5,482 and 5,599.
Since the previous medium-term peak for the index was at 5,630, continued bullishness in the upcoming weeks could make the Nifty head towards this level. Since this is also a significant long-term resistance, investors should watch out for a reversal from this level.
If we extrapolate the targets of the third leg of the up-move from April low, we again land on the target at 5,600.
This confluence of targets around 5,600 could make it the ceiling for this year.
Global cues
Most global benchmarks continued moving higher last week despite weak economic numbers from China and continuing concerns on Spain’s borrowings.
CBOE volatility index continued to trudge lower and is inching close to the March low of 13.6 implying that investor sentiment remains upbeat.
CNNMoney’s Fear and Greed Index is currently reading 71 implying that investor sentiment in the US is leaning towards greed.
Reading of less than 50 denotes a leaning towards fear.
But that is predominantly the mood in the US and investors there have a reason to be optimistic since the Dow is holding strong above the 13,000 mark.
We continue to believe that the index is headed towards 13,338 in the weeks ahead.
Medium-term targets stay at 13,848 and 14,198.
Dow needs to close below 12,700 to reverse the positive short-term view.
Almost all Asian benchmarks, including the beleaguered Shanghai Composite Index, closed higher for the week.
The drought in the US and other countries took corn prices to a new life-time peak.
The 2011 peak of $800 will be the critical support to watch in this contract.
Soyameal and soyabean contracts are also holding near their life-time highs.