Market poised on the brink

The first quarter of 2015 has been full of sound and fury signifying nothing; at least in terms on index returns. Stocks have been struggling to hold on to higher levels. Despite the Sensex crossing above 30,000 briefly and the Nifty hitting the 9,000 peak, conviction level among investors has been low.

The correction that began in March has erased all the gains made by the Sensex and the Nifty since the beginning of this year. In short, the benchmarks have made absolutely no progress in the first three months of trading this year.

However this kind of sideways movement should not be derided. This is the best that market can do – move in a range – till earnings catch up with price.

The last week of March has not been too good for Indian markets. After trudging desolately lower in the first three sessions, indices recorded a sharp sell-off on Thursday.

Traders unwinding long positions in the last trading session of the March derivative series as well as geopolitical tension caused by Saudi Arabia launching military operations in Yemen caused stocks across the globe to crash in that session.

The truncated week ahead could see stocks try to stabilize at current levels. With the Sensex and the Nifty down almost 9 per cent from their recent peaks, bargain hunting can emerge in the week ahead.

Despite the perception that foreign portfolio investors were net sellers last week, they have been buying in many of the sessions last week. The tally for their purchases in equity in March has now risen to $1.9 billion. They have bought $1.4 billion of debt so far this month.

Daily oscillators have moved deeper in to the negative zone. The price rate of change oscillator is attempting to reverse from the over-sold zone.

The worrying part is the negative divergence in the weekly oscillators such as the moving average convergence divergence indicator. This indicator is giving a sell signal since last September even as the indices have been hitting new highs.

Sensex (27,458.6)

The Sensex hit the intra week low at 27,248 on Friday and ended on a shaky note.

The week ahead: The Sensex moved below the support at 27,800 indicated last week. But it is currently pausing just above the 200-day moving average. This is a support that many in the market will be watching. Traders holding short positions should stay on their guard as long as the index hovers above this average line.

Supports on a move below 27,200 are at 26,776 and 26,470.

A bounce from current levels can take the Sensex to 28,336, 28,820 or 29,000. Short-term outlook will turn positive only on a close above 29,000.

Medium-term trend: The Sensex has recorded a close below 28,000 affirming that the medium-term trend is on the verge of turning downward. As we have been re-iterating, one leg of the long-term bull market is in force from the August 2013 low at 17,448. This wave could have ended at 30,024 recorded on March 4.

A correction of this move can be a shallow one that makes the Sensex move between 25,000 and 30,000 for the rest of this calendar. A deeper correction will be short-lived but can pull the index below 24,000. The medium term view will turn positive only on a firm close above 29,000.

Nifty (8,341.4)

The Nifty hit the low of 8269.1 before ending the week 229 points lower.

The week ahead: The Nifty has moved below the short-term support at 8,400. Next support is at the 200-day moving average present at 8,184. Move below 8,184 can take the index to 8,065 or 7,961.

If there is a rebound in the early part of the week, the index can rise to 8,600, 8,700 or 8,800. Inability to move beyond the first hurdle will be the cue for short-term traders to initiate fresh shorts with stop-loss at 8,820.

Short-term view will turn positive on a close above 8,800.

Medium-term trend: The index has moved below 8,400. The medium-term trend is therefore at risk of reversing downward. We will however wait to see the close of this week, before confirming this view.

As discussed earlier, one leg of the long-term bull market that began from the low of 5119, recorded in August 2013 could have ended at the 9,119-peak recorded on March 4.

The corrective move that follows can drag the index lower to around 7,600. A sideways move between 7,600 and 9,000 can then follow over the rest of this calendar year.

If the correction gets deep, a fall to 7,000 or lower is possible. But such a correction can be a short one.

We will retain a negative medium-term view as long as the index trades below 8,700.

Global cues

Global markets sold off last week and most benchmark indices closed with deep losses. CBOE volatility index closed the week up almost 15 per cent as investors turned nervous about their holdings. European indices paused their recent strong uptrend. DJ Euro STOXX 50 closed around one per cent lower.

Dow Jones Industrial Average once again fell-off from the 18,000 level implying that this is turning in to a formidable resistance for the Index. The index is however above its short-term support at 17,500. The index needs to decline below this level to signal a reversal in the short-term trend.

Choppy trading on the cards

It was a lackadaisical show by Indian equities last week. While stocks did not sell off sharply, investors appeared reluctant to put in more money at these levels. Both the Sensex and the Nifty recorded slight declines.

Global markets recovered towards the end of last week but volatility could continue in the Indian equity markets next week. The derivative expiry scheduled for Thursday will make traders nervous about holding long positions.

Conversely, sharp upward reversal in the early part of the week can send bears scurrying for cover, taking stock prices higher.

Increase in derivative turnover to more than ₹300,000 crore on the NSE reflects this nervousness among traders.

Global equity markets, that seemed to be on the brink of caving in, recovered smartly last week, thanks to Janet Yellen’s monetary policy statement that lent hope that the policy rates in US will not move higher in the first half of the year.

This made the dollar retreat from its 12-year high and the euro, crude, and equities launched a relief rally.

Foreign portfolio investors have been on the back foot in the last couple of weeks, selling equity in small lots. But thanks to the money brought in, in the first week of March, the tally for the inflow in March stands at $1.6 billion.

This is surprisingly higher than the money brought into debt in March, at $931 million. Perhaps the currency volatility is making the foreign investors in debt go slow with their investments.

Oscillators in the daily chart have moved well into the negative zone implying that the short-term trend has turned negative for the index.

Weekly oscillators are also giving a sell signal. But they are poised in the neutral zone implying that the medium-term trend is under threat but has not reversed lower yet.

Sensex (28,261.1)

The close below the 50-day moving average does not bode well for the Sensex.

The week ahead: The index moved below the first support mentioned in our last column. The support at 28,044 is to be watched now. The 28,000 mark will also be a psychological support to the index.

The support below this level is at 27,800. Fresh purchases should be avoided on a close below 27,800 as that will mean that the downtrend can prolong.

Short-term resistances for the index are at 28,893 and 29,304. The failure to move above the first hurdle will signal that the down-move will continue.

Medium-term trend: The medium-term trend is currently under threat. But a firm close below 28,000 is needed to confirm this threat.

Such a break can pull the index lower to 26,500 or lower to 25,000 over the medium term.

Nifty (8,570.9)

The Nifty closed 76 points lower last week, confirming the evening star formation in the weekly chart. Traders need to be cautious with their long positions now.

The week ahead: Immediate support for the Nifty is at 8,500. Reversal above this level can take the index higher to 8,761 or 8,906 in the days ahead.

The failure to move beyond 8,761 will be the cue for traders to go short with stop loss at 8,920. Short-term view will turn neutral only on a close above 8,900.

If the index continues declining, it can move on to 8,470 or 8,408 in the coming sessions. Fresh long positions should be avoided on a close below 8,408.

Medium-term trend: The medium-term outlook remains positive. But a close below 8,400 will put the medium-term outlook at risk.

It will mean that a significant peak has already been formed at 9,119.

The index can then decline to 7,961 or 7,500 in the ensuing months. The next couple of weeks are therefore important to determine the medium-term trajectory in the index.

Global cues

Sharp appreciation in stock prices towards the weekend helped most global indices close on a strong note. European indices such as the CAC, DAX and the FTSE went on to close to new multi-year highs. The CBOE volatility index dipped almost 18 per cent to end close to 13, reflecting increase in investor optimism.

The Dow too reversed to close 378 points higher. The short-term view on the index remains positive as long as it trades above 17,500. But the reversal implies that the index can move on to 18,288 or 18,511 in the days ahead.

The S&P 500 index is also drawing close to its life-time high of 2,119. The Nasdaq Composite is less than 200 points away from its 2,000 peak of 5,207.7

The Shanghai Composite was an outperformer, gaining over 7 per cent. With the break past 3,500, the index appears set to move on to the next target of 3,900. Unless there is a decline below 3,500 in the coming weeks, the index will be on its way to a long-term breakout.

The dollar index retreated from its multi-year peak of 100.38 to close more than 2 per cent lower. The Fibonacci retracement level at 101.7 will be the key level that needs to be watched. If it is not surpassed, the index can retract lower.

Derivative expiry scheduled on Thursday can make indices move in either direction

Source : Business Line

Sensex to touch 54,000 by 2018, but range bound for next few months: BofA-ML

Bank of America-Merrill Lynch (BofA-ML) said on Tuesday that the Indian equity benchmark S&P BSE Sensex is likely to touch 54,000 by end-2018, but will be rangebound-to-negative over the next few months. 

BofA-ML highlighted consensus overweight and lack of on-ground change since formation of the new government as the key near-term risks for Indian markets. 

The investment bank said that the stock rally on positive events such as Union budget and Reserve Bank of India’s (RBI’s) rate cut have been sold into. The Sensex has fallen 2.1% from its record high of 30,024.74 on 4 March despite RBI’s surprise rate cut. 

BofA added that clear roadmap, which may help in increasing spending in sectors such as roads, railway and defence, accompanied by rate cuts would drive recovery in the long term. 

The investment bank remains overweight on rate-sensitives and operating leverage plays such as autos, banks, cement and oil companies. It recently added pharma as an overweight to play a tactical consolidation in the market.

BofA-ML’s top picks include ICICI Bank Ltd, Lupin Ltd, Bharat Petroleum Corp. Ltd and UltraTech Cement Ltd. Reuters

Stocks sway to the global beat

There was pandemonium in financial markets last week with most asset classes, including currencies, gold, bonds and equity markets getting extremely volatile. The initial trigger for this turbulence was the strong US jobs data that re-kindled fears of an early rate hike by the Federal Reserve. This sent the dollar index to a 12-year high near the 100 mark, causing other currencies, including the rupee, to go into a tailspin.

Stock market participants were not too pleased at the rupee’s weakness. Foreign portfolio investors turned net sellers in equity last week and this sent the Sensex and the Nifty hurtling lower.

It is, however, too soon to conclude that a medium-term correction that pulls the benchmark indices 15-20 per cent lower is underway. But as we have been reiterating, our market has been on a breathless run since August 2013, with only mild dips of less than 10 per cent in the interim period. With prices of many stocks moving away from their intrinsic value, stock prices could halt to let earnings catch up.

The correction can be either a swift and sharp one — that causes prices to decline sharply in a very short period — or a relatively shallow one that drags on for many months. With India better placed than most other countries in terms of growth and currency stability, buying is likely to emerge at every decline, making a shallow correction more likely.

Crude is doing its bit to add to the jitters. The ephemeral rally since the beginning of February has fizzled out and prices are once again nearing the recent lows of $43.5. A decline to the 2009 low of $32-34 will be possible if supply continues to exert pressure on prices.

With the US market declining on Friday due to worries on corporate earnings, dollar surging to record highs and falling crude oil, stock and currency markets will open on a tentative note this week.

Economic data releases in India weren’t too cheerful. The consumer price inflation for February recording a year-on-year growth of 5.4 per cent against the index a year ago revived fears that the RBI could halt its rate cuts.

Industrial production numbers for January however, showed that there was some improvement in manufacturing activity. Exports lower by 15 per cent compared to last February is a cause for concern too.

Sensex (28,503.3)

The Sensex lost close to 1,000 points last week and ended on a weak note.

The week ahead: An evening star pattern is visible on the weekly chart of the Sensex. This is a reversal pattern. But we need to wait for confirmation from the next candle before concluding that a top has been formed.

Since the Sensex breached the first support mentioned last week of 28,683, the possibility of a break to a new high in the immediate future is bleak. The index also moved slightly below its 50-day moving average on Friday.

But we will watch for one more session to see if the decline continues. Upward reversal from these levels will face resistance at 29,112 and then at 29,422. Rally to either of these levels will be a good point to initiate fresh short positions.

That said, it is quite likely that the decline will continue in the early part of next week. The targets for this decline are 28,293 and 27,743. The recent trough at 28,044 will also provide support in a decline.

Medium-term trend: The medium-term trend continues to be up. But caution needs to be exercised at these levels as a major long-term wave is drawing to a close. A finish below 28,000 will be the first signal that the medium-term trend could be reversing lower. Downward targets will then be at 26,500 or 25,200.

Nifty (8,647.7)

The Nifty too formed an evening star formation in the weekly candle-stick chart last week.

The week ahead: The short-term trend in the Nifty is certainly down. But the index is halting close to the first support indicated in our last column. It is also perched near its 50-day moving average at 8,660.

Traders with short positions need to watch out for sudden reversal from these levels. Resistances will then be at 8,813 and 8,926. Reversal from either of these levels will provide an opportunity for traders to short the index.

Downward target on a break below 8,600 are 8,575 and 8407. The previous trough at 8,407 will also come in handy in supporting the index in a decline.

Medium-term trend: There is no alteration in the medium-term outlook. But as mentioned in the discussion under Sensex, it is best to be vigilant at these levels.

Global cues

Most global markets retreated from higher levels last week as fears of a US interest rate hike pulled them lower. European benchmarks such as the CAC and the DAX however, made merry as the euro at 12-year low is expected to help their economies by making exports more competitive.

The DJ Euro STOXX 50 gained more than 1 per cent even as other benchmarks declined.

The Dow declined below the near-term support at 17,800 last week, but the next support at 17,500 is the more important one. The short-term view will turn adverse only on a decline below this level, paving the way for a decline to 17,100.

The dollar index closed above the 100 mark on Friday, at its intra-week high. This implies that the index could attempt to move to the key resistance at 101.7 now. If this level is breached, the index will be coasting along to 120.

As the turbulence in global financial market continues, market can open on a weak note

Index outlook: Market enters a rough patch

Stocks meandered in a lackadaisical manner in the early part of the week. Intra-day volatility was, however, high as investors tried to make up their minds about the direction in which stocks could now move.

Raghuram Rajan’s largesse on Wednesday in the form of a 25 basis points cut in the policy rate made market participants euphoric, taking the Sensex beyond 30,000 and Nifty above 9,000. But the steep sell-off witnessed from the intra day high recorded in that session implies that the uptrend lacks inherent strength.

There could be turbulence in stock markets, at least in the early part of next week.

The Dow Jones Industrial Average and the S&P 500 recorded sharp declines on Friday due to unemployment numbers in the US declining to seven-year low of 5.5 per cent.

This revived fears of the Federal Reserve hiking rates sooner than expected. US stocks that have been rallying over the last five years, buoyed by the easy money policy followed by the US central bank, now face the threat of losing steam.

The nervousness could spill over into other markets, including India, since it is the money pumped in by various central banks such as the European Central Bank, Bank of Japan and the Federal Reserve that are fuelling the global rally in stocks. With the Budget not offering any trigger to take stocks higher from here, there is a case for a correction from these levels. It is best to get your shopping list ready to make the most of such a decline.

The industrial production and consumer price inflation numbers slated for release next week will be of interest to market participants. The passage of the insurance Bill and the coal mines bill in the ongoing session of Parliament will also affect sentiment. The initial public offer of Adlabs Entertainment will be another sidelight to the trading next week.

Both cash as well as derivative volumes were tepid over the week. FPIs were net buyers in the equity market. Open interest in the derivative segment is not too alarming at ₹220,000 crore.

Momentum indicators in the daily chart are moving sideways in the neutral zone.

This implies that the short-term trend is ambivalent and a move in either direction is possible.

The negative divergence in the weekly charts remains a worry. The prices continue to hit new highs but the weekly price rate of change oscillator has been recording lower peaks and troughs since last July.

This means that the medium-term trend lacks strength and a correction is imminent.

Sensex (29,448.9)

The short-term trend has reversed since the peak of 30,024 recorded on Wednesday.

The week ahead: An important peak might have been formed at 30,000 last week. Immediate supports for the Sensex are at 28,683 and then 28,000. If the index manages to hold above the first support, it will mean that the possibility of a break to a new high again remains open.

However, fresh long positions should be avoided below 28,000. Key short-term resistance stays at 30,024. Next target is at 30,171.

Medium-term trend: We are at a critical juncture from a medium-term standpoint.

As we have been reiterating, the final leg of the up-move from the August 2013-low is unfolding in to a diagonal triangle. This triangle is in its final stages.

Move beyond 30,200 in the coming weeks makes a rally to 30,900 or 31,419 possible. But if the index declines below 28,000, a medium-term correction that can pull the index to 26,500 or 25,200 will be on.

Nifty (8,937.7)

The Nifty went briefly above the 9,000 level to hit the high of 9,119 before reversing lower.

The week ahead: The short-term trend in the Nifty has reversed lower from the peak of 9,119. Immediate supports for the index are at 8,719 and then at 8,466.

Short-term traders can buy stocks as long as the index trades above the first support. The short-term trend will reverse only on a close below 8,466.

The 50-day moving average at 8,623 will also be an important short-term support for the index.

Key short-term resistance for Nifty lies at 9,119.

Medium-term trend:  The medium-term trend in the Nifty continues to be up. But the final part of the move from the August 2013 low appears to be unfolding into a diagonal triangle pattern. The final part of this move could be in motion now.

If the index struggles to move beyond 9,100 in the coming weeks, it will mean that it is readying for a decline to 7,500 or lower.

Global cues

Global equity markets continued moving higher last week. But the setback to North American equities towards the end of the week pulled these benchmarks lower.

The CBOE volatility index moved up from the low of 12.8 as nervousness surged following the sell-off. The Dow too turned jittery as it closed in on the 18,000 level. Immediate supports for the index are at 17,800 and then at 17,500. It is currently halting at the first support.

Reversal above this level will take the index to a new high. The short-term view will turn negative only on a close below 17,500.

The sharp surge in the dollar index to 97.6 on Friday does not bode well for the rupee. Next target for the index is 101.7. If this level is breached, the index can head towards 120.

The sell-off in US stocks on Friday could usher in volatility early this week

What lies beyond the Budget

Arun Jaitley has had his say. If the gyration of the stock market on Saturday is anything to go be, investors appear confused. But that is not such a bad thing.

Markets typically tend to latch on to any one positive or negative factor to send stock prices surging or crashing.

This time, investors appear to be paying more attention to the details.

The uncertainty appears to stem from the fact that the Finance Minister has deftly mingled positives and negatives in the Budget to serve up a concoction that is directed towards raising funds to kick-start the economy. The prospect of reduction in corporate tax over the next four years to 25 per cent is a definite positive for companies.

But this has been offset by the increase in service tax, excise duty and the additional surcharge on companies. Investors can see their tax outgo reduce, but only if they plough their surplus into savings instruments such as insurance and NPS.

Postponing the implementation of the General Anti Avoidance Rule by two years will assuage the fears of foreign investors, who now control almost half the country’s free-float market capitalisation. But the Government has left the Securities Transaction Tax unchanged, disappointing the trader fraternity.

Overall, since the Budget has its eye on the long-term growth, investors will now struggle to find a trigger to take stock prices higher from these levels in the near term. With the Sensex price earnings multiple at 20, stock prices need to halt and move sideways for a while to allow earnings to catch up. Volumes in the derivative segment of the NSE hit a record level of over ₹500,000 crore on Thursday, the day of the derivative expiry.

Cash volumes hit a crescendo towards the end of the week. FPIs turned net buyers in equity again, after remaining net sellers through February. Oscillators in the daily chart are dipping lower displaying negative divergence.

This signals weakness in the short-term outlook. Weekly oscillators too are moving sideways after a decline. This means that theuptrend lacks inherent strength and a decline is imminent.

Sensex (29,361.5)

The Sensex is attempting to recover from the intra-week low of 28,693.

The week ahead: The short-term trend that reversed higher on February 10 continues to be in force.

This trend will face initial resistance at 29,844. Once this level is surpassed, the index can go on to 30,171.

But the Sensex is likely to stutter once it nears the 30,000 mark. So watch out for turbulence around that region. Reversal from the 30,000 mark can bring the index back to 28,000.

Supports for the week will be available at 28,322, where the 50-day moving average is positioned and then at 27,815.

Short-term trend will be under threat only if the index declines below 27,815.

Medium-term trend: Medium-term trend in the index continues to be up. If the index manages to get past the hurdle at 30,200, it can move on to 30,900 or 31,419 in the coming weeks.

But as we have been reiterating, it is best to watch out for a medium-term reversal from here on.

Declining strength in momentum indicators and the fact that we have not had a meaningful correction in a long time support this assumption.

Key medium-term support stays at 25,120.

Nifty (8,901.8)

After gyrating wildly over the week, the Nifty ended with less than 1 per cent gain on Saturday.

The week ahead: The short-term trend in the index is currently up. But investors should watch out for correction as momentum is slowing down in the short as well as medium term. Nifty can rally to 8,996 or 9,112 in the week ahead. But investors should watch out for a reversal from the zone between 9,000 and 9,100.

Supports for the week will be at 8,669, 8,558 and then 8,421. The 50-day moving average positioned around the second support will cushion any short-term decline.

Short-term outlook will reverse only on a close below 8,428. Next support is at 8,102.

Medium-term trend: The medium-term trend in the Nifty is not under threat yet. If the index gets past 9,100, it can head towards 9,400 over the coming weeks. Key medium-term support is at 7,800.

Global cues

Global benchmarks edged higher over the past week. European benchmarks were very strong with the CAC, DAX and the FTSE closing with gains over the past week. The DJ Euro STOXX 50 closed 3 per cent higher.

The US markets were however sedate after the strong surge witnessed in the previous week.

The Dow closed the week on a flat note reflecting investors’ nervousness as the index approached the 18,000 mark.

The S&P 500 and the Nasdaq too closed flat, giving up the gains made in the early part of the week.

Investors are likely to struggle to find triggers to push stock prices higher

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