It was a sedate week for equity market with the benchmarks ambling sideways. Investors appear to be biding their time, sitting on the fence, wondering if it is prudent to buy at current levels. Sensex ended the week lower by 55 points, while the Nifty lost 22 points.
Weak monsoon and looming prospect of drought failed to rattle the market. Market participants appeared more worried about the RBI’s policy action in the next monetary policy meeting. FIIs were, however, gung-ho last week too. According to SEBI, FIIs net purchased $1.6 billion worth of stocks in the secondary market in July and $10 billion this calendar year.
Cash volumes were lacklustre, but derivative volume witnessed a sharp jump on NSE, remaining above the 1,00,000-crore mark in all the sessions. Open interest has moved close to Rs 1,41,000 crore. This is not high enough to cause undue volatility at the F&O expiry next Thursday. Index put-call ratio is also close to one, denoting that the market is evenly divided between the bulls and the bears.
The week ahead is critical from a short-term perspective since the indices are pausing at short-term support. Upward reversal from these levels will mean that Sensex can attempt to move ahead in the medium-term. But decline below current levels will mean that the uptrend from June low could be under threat.
Sensex (17,158.4)
Sensex remained confined to a very narrow range last week, moving between 17,038 and 17,319.
The short-term trend in the index is down since the 17,631 peak. Key short-term resistances for the index are at 17,340 and 17,409. Short-term trend will turn positive only on move above the second resistance. Next target would be 17,631.
But the index reversed lower with an evening star pattern in the daily candlestick chart last week. This denotes that the index can head lower to 16,951 or 16,726 in the upcoming sessions.
If we consider the retracement of the up-move from 15,748 low, the index has support in the zone between 17,000 and 16,911. The index is attempting to halt in this region. If this support holds, the index can break higher to 17,631 or 18,200 over the medium-term.
But break below 16,911 will result in the index moving lower to 16,595 or 16,467. We continue to adhere to the view that the 50- and 200- day moving averages present in the zone between 16,800 and 16,900 will cushion its down-move over the medium-term.
Nifty (5,205.1)
The Nifty too moved in an extremely narrow band between 5,170 and 5,260 last week. Short-term trend in the index is down and immediate resistances are at 5,262 and 5,283. Since the index is moving lower from the first resistance, it can now decline to 5,169 or 5,146 in the short-term. Short positions should be closed if the index moves above the second resistance. Next target for the index would be 5,348. The index has key medium-term support zone between 5,125 and 5,170. It is currently attempting to hold above this area. If this support holds, the index can move higher to 5,348 and 5,527 in the weeks ahead. Medium-term supports stay at 5,030 and 4,991.
Global Cues
All other news took a back-seat as investors focused on quarterly earnings last week. Most global indices closed with slight gains. CBOE volatility index continued to move lower and closed at 16.2. Next support for the index is 13.6 that is the low made in March this year. A close below this level will imply that investors are feeling extremely upbeat and a rollicking bull market is about to unfold.
DJ Euro STOXX 50 that represents European stocks is moving sideways over the last three weeks. This move follows a short-term rally from 2,050. This index will have to close above 2,400 to indicate that a sustainable recovery is underway. Reversal from current levels can bring back volatility.
The Dow also formed a spinning top formation in its weekly chart last week that denotes indecision. The index is also poised at key short-term resistance at 12,850. Sharp move beyond this level will take the index to 13,338 while a reversal from here will drag it back to 12,035.
The medium-term trend in the Dow is up and the fact that the index is finding support around its 38.2 per cent retracement denotes strength. Close above 13,300 will mean that the index is heading towards 13,848 and then its life-time high at 14,198.
Asian benchmarks such as Jakarta Composite Index, KLSE Composite Index and Straits Times Index recorded strong gains last week. Malaysia’s KLSE Composite Index closed a new life-time high and the index is up 10 per cent this calendar.
Gold is hovering close to its recent lows at $1,582. As explained earlier, the metal has support around $1,535, from where it has rebounded twice since last September. But the point of concern is that the metal has formed a descending triangle in the weekly chart. This is a bearish formation. It is possible that the metal breaks lower to $1,450. But investors need to worry only on a close below this level. For the targets of the descending triangle pattern discussed above are $1,286 and $1,138.