The four-day week ahead could see further volatility as the December derivative contract expires this Wednesday. Investors will keep an eye on the unfolding events in Russia and elsewhere as they juggle with their investment strategy.
There was heightened drama in all financial markets last week. Indian equity investors who were thus far rejoicing at the positive impact of sliding crude prices on companies’ input costs and the country’s import bills, began worrying about the negative impact on our exports and foreign portfolio and direct investment flows.
The currency market was also in an upheaval with the Russian rouble facing a speculative onslaught and the Russian central bank hiking the interest rate in the country by 6.5 percentage points. The rupee added its bit to the ongoing pandemonium, moving close to the 64 mark against the dollar.
But peace returned in the latter part of the week, thanks to the Federal Reserve saying it intends to be patient in hiking interest rates in the US, and that policy rates could remain at the current level for a ‘considerable time’.
Higher volumes in the cash segment on the days when the market declined signal that retail investors are willing to buy in declines. Derivative volumes on the NSE too hit record levels in the early part of the week, signalling higher trading interest. Foreign portfolio investors stayed net sellers till Thursday, according to SEBI.
The fate of equity markets now hinges on crude price movement. As explained earlier, the level between $60 and $65 was the critical support for the commodity. Crude fell to $53.6, representing a 74 per cent retracement of the previous up-move. This is also permissible as a retracement when selling pressure is intense. It needs to be seen if crude holds above the $50 mark in the coming weeks. If it does, some stability can return to financial markets. Else a slide to $38 will be on.
Momentum in the daily chart deteriorated with the daily oscillators moving deeper into the negative zone. But there was a slight recovery towards the weekend. The short-term trend, however, continues to be down.
Oscillators in the weekly chart are giving a sell signal but they continue to be in the positive zone, implying that the medium-term view stays positive.Sensex (27,371.8)
The Sensex reversed upward from the low of 26,469 mid-week and gained 823 points from there.
The week ahead: But the negative bias in the short term has not yet reduced. The Sensex has immediate resistances at 27,407 and then 28,000. We need a strong close above 28,000 for the near term trend to turn positive. But failure to move above 27,400 early next week will be taken as a negative signal. It will mean that the index can move lower to 26,042 or 25,144 in the days ahead.
Since the 50-DMA is also positioned at 27,500, a close above this level will be construed a short-term victory for the bulls.
Medium-term trend: As explained earlier, we are expecting the completion of a medium-term move at the November peak at 28,822. The extent of the pull-back next week will determine if we are in a medium-term correction or if the correction over the last three weeks was just a short-term pull-back.
If the Sensex moves above 28,000, it will mean that the up-trend has resumed and we will be hitting new highs soon. On the other hand, inability to move above that level will mean that the move down from the 28,822-peak will have legs that can pull it lower towards the 24,500 level indicated earlier. The 200-DMA at 25,200 will also be an important support if there is a sharp medium-term correction.Nifty (8,225.2)
The Nifty reversed from the low of 7,961 to end the week on a flat note.
The week ahead: The index faces short-term resistance at 8,231 and then at 8,372. That the index is halting at the first hurdle implies that traders need to be a little watchful in the early part of the week. Presence of the 50-DMA at this level adds to its significance. Reversal in the early part of the week can pull the index lower to 7,961. A move below this level can take the index to 7,854 and then 7,601.
Medium-term trend: The medium-term view is under threat as the index moved below 8,000 last week. But a strong close below this level is needed to signal that further deterioration is possible.
Inability to move beyond 8,372 in the next couple of weeks will strengthen the possibility of a drift lower towards 7,724 or 7,600 over the coming weeks. But if this level is surpassed, the index will be on course to record a new high soon.Global cues
Most global benchmarks recovered in the second part of the week to erase some losses. The CBOE volatility index too declined sharply from the intra-week high of 25.2 to close the week at 16.5, as investor trepidation abated.
The recovery has been spectacular in Dow, with a strong piercing white candle in the weekly chart that has gone past more than three-fourth of the white candle formed in the previous week. That the index retraced only 38.2 per cent of its previous up-move implies that it can move higher to 18,400 or 19,200 soon.
Indices have recovered but there are some hurdles in the near term