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