The quarterly earnings parade continued last week causing stock specific moves. But investors appeared apathetic to the goings-on in the market. The onset of a correction in stock prices could have sent some investors to the fence while the ongoing Navratri and Durga Puja festivities could have drawn others from their trading terminals.
The Sensex and Nifty moved placidly in a very narrow band resulting in a doji formation in the weekly Sensex chart. Headline inflation rising to a 10-month high of 7.8 per cent in September and the political turbulence caused by the scam involving DLF and the Congress Chief’s son-in-law helped keep stock prices under check.
News out of Europe was positive with European Union leaders agreeing to set up a banking supervisor for the Eurozone to ward off a crisis in future.
Volumes were subdued in both cash as well as derivative segment. FIIs continued to nibble at stocks. Open interest in derivatives has reached Rs 1,63,000 crore implying that the F&O expiry scheduled for Thursday could be quite interesting.
Oscillators in the daily chart have moved in to the negative zone reversing the short-term trend downward. The monthly oscillators are however slightly positive. Both Sensex and Nifty are placed well above their 50 as well as 200-day moving averages. The indices are also above their February peaks. Breach of this peak is the first signal of an impending trend reversal.
Stocks could continue to tread water in the truncated week ahead. Trading is also expected to be thin as market participants take off in the early part of the week. The F&O expiry scheduled next Thursday could keep traders edgy.
Sensex (18,682.3)
The sideways move in the band between 18,530 and 18,800 appears to be the distribution phase before the index takes one more step lower. Sensex could slip lower to 18,442 or 18,218. Short term investors can watch out for the support around 18,200. If this level is breached, the decline can extend to 17,854.
Key short-term resistance is at 18,912. Short-term outlook will remain negative as long as the index trades below this level. But break above this level will mean that the index can head to 19,134.
Medium term target on break above 19,134 would be 19,504.
Our medium-term view has not been altered yet since the index did not decline further last week. Medium-term trend stays positive for the index.
But the index is currently reversing lower from the key medium-term target zone between 18,800 and 19,150. It is possible that a significant peak is already behind us. But we can determine that the medium-term trend has reversed only when the index closes below 17,000.
Nifty (5,684.2)
Nifty moved in a tight band between 5,636 and 5,722 last week. This move appears to be the second wave of the downtrend from 5,815 peak with the third wave down set to drag the index down to 5,663 or 5,596 in the week ahead. Traders can go short in rallies with a stop at 5,750.
Key short-term resistance is pegged at 5,745. Short term outlook will reverse on a move above this level, paving the way for a rally to 5,818. The index will face strong resistance around the previous peak at 5815.
A sharp move above this level will give the next medium term target of 5,933.
Medium term trend in the index continues to be positive and the index needs to close below 5,420 to make this view negative.
Global cues
Global stock markets did not make any headway last week and closed on a slightly bearish note. Quarterly earnings dominated proceedings on global markets too. There was a sell-off in US stocks on Friday after McDonald and General Electric reported earnings that fell short of forecasts.
CBOE Volatility Index spiked higher on Friday as US investors rushed to take some profits. This index has been however moving sideways in the band between 13.5 and 17 since the beginning of September.
That this band is positioned close to the index’s long-term support at 13 implies that the mood among US investors continues to be gung-ho.
This trend is also reflected in the Dow Jones Industrial Average. The index has been moving sideways in the band between 13,300 and 13,650 since early September. The medium-term trend in this index is up since the low of 12,035 formed in June. A close below 13,000 is required to reverse the medium-term trend downward.
But the fact that the index is struggling to move past the resistance at 13,650 implies that investors need to stay cautious until this level is surpassed.