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We closed the special trading session on Saturday with both the Nifty and the Sensex poised tantalisingly close to their previous peaks. In technical parlance, the indices are at key resistances or hurdles and the movement next week will decide if it will be a dash to a new high now or a slump towards April lows.
There are many in the market who would prefer the latter (a fall) so that they can climb on the bull bandwagon. The same sense of disbelief and annoyance is accompanying the Dow’s move above 15,000, S&P 500 and DAX’ close at a new life time high and the Nikkei’s close at a four-year high.
Even as talk of bubble in equity prices caused by expansionary monetary policy adopted by Central Banks gets louder, the bulls are also creating equally loud noises about how equity prices move ahead of economy and all the bad news is already discounted and so on.
Foreign institutional investors reposing their faith in Indian equity and turning net purchasers is one of the reasons behind the upsurge in domestic equity prices. The Congress emerging the winner in Karnataka’s assembly polls and improvement in industrial production numbers were other positive triggers.
Open interest in the derivative segment has moved above Rs 1,50,000 crore reflecting heightened trading interest. The price rate of change oscillator in the daily chart is dipping after reaching over-bought region signalling a drop in momentum in the short-term.
But the noteworthy point in oscillator study is the weekly rate of change oscillator cutting above the zero line and the buy signal in the weekly moving average convergence divergence oscillator. The weekly RSI is also moving into bullish zone. If these oscillators continue to move higher, it will signal the onset of a fresh leg up in the medium-term trend.
Sensex (20,122.3)
The Sensex defied gravity last week and went on to close above the 20,100 level on Saturday. The index is now a hair’s breadth away from its previous peak at 20,203 and that will be the next short-term target for it.
Investors should watch out for turbulence around this peak. But once the index gets past this level, it can move on to 20,664 or 21,108. Short-term trend will stay positive as long as the index holds above 19,377. Close below 18,910 will mean that the bears are getting the upper hand in the near term.
As we have been reiterating, the peak around 20,200 is a very critical level from a medium-term view point. Clean break above will take the index towards its former peak at 21,108 or to the next long-term target at 22,599. But reversal from this level will mean a pull-back towards 18,500 or 18,100.
Nifty (6,107.2)
The Nifty performed slightly better than the Sensex, reaching its previous peak at 6,112. Our short-term target at 6,112 was achieved by the index last week. As we have been reiterating, this is a critical level from a medium-term perspective. Strong break above this level can take the index to 6,336 or even 6,814 over the months ahead.
On the other hand, reversal from current levels will open the possibility of the index declining to 5,600 or 5,450 in the months ahead.
Short-term supports for the index are at 6,020 and then at 5,962. Short term traders can play long as long as the first support holds. Short-term outlook will turn adverse only if the index goes on to close below 5,870.
Short term targets on break above 6,100 are 6,181 and 6,336.
Global cues
The movement of yen and Nikkei kept global investors preoccupied last week. The yen on a downward spiral against the greenback moved below 100 to hit the low of 101.9 on Friday. The Nikkei was also on a tear, moving above the key long-term resistance of 14,000 that we have been watching. If the index sustains above this level another week, it will mean that the index can head towards the 2007 peak at 18,297 in the ensuing months.
The Dow moved above the 15,000 barrier to close at 15,118. If we extrapolate the up-move from March 2009 low in the Dow, we get the next target at 16,811. Minor count of the move from the trough at 10,404 gives us the next target at 15405. These are the long-term targets we will have to work with now. A strong close below 14,000 is needed to reverse the positive long-term trend.
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