Not much action is expected in the market next week too, as many market participants are away on a well-earned break.
Christmas cheer pervaded the stock market last week. Thanks to a final flourish on Friday, the Sensex closed 114 points higher and the Nifty closed the week up 39 points.
Derivative expiry and traders closing their short positions helped support prices in the early part of the week. There was good news from the US markets with President Barack Obama signing a compromise budget that reduced the possibility of another US government shutdown. US GDP growth in the third quarter coming in better than expected also aided sentiments in the global markets.
Volumes in the cash segment were muted even as derivative volumes surged ahead of the expiry. FIIs turned bullish on both equity and debt in December, pumping $2.5 billion in to equity and $872 million in to debt so far this year.
As the markets amble into New Year, action is likely to be muted with many investors away for their year-end break. The short-term trajectory will be apparent only when the holiday-makers return on January 6.
December quarter earnings will once again begin dominating stock price moves in the coming weeks and FII flows will be keenly watched to see if the reduction in Federal Reserve’s stimulus has any impact on these investments.
Despite the surge in optimism on the Sensex moving above the 21,000-mark, the index is yet to get past the resistance at 21,200. The Nifty too, is tantalisingly poised at the short-term resistance level at 6,300.
Negative divergence in the weekly price rate of change oscillator implies that the indices are losing momentum over the medium-term timeframe.
This oscillator has dipped to the negative zone on the daily chart implying that the sideways move witnessed last week has resulted in a loss of momentum.
The Sensex ended slightly in the positive after meandering sideways for most of the week.
Key short-term resistance for the index is at 21,126. Despite the index closing above this level on Friday, the breakout is not emphatic enough.
The trading day on Monday will determine the index’s short-term trajectory.
If the Sensex fails to make headway on Monday, it can retract to 20,818 or 20,572. The short-term view will turn negative only on close below 20,572. Conversely, a move above 21,226 will take the index higher to 21,483.
The medium-term view for the index is positive. Since the correction from the November 3 peak has halted after retracing just a third of the previous upmove, it implies that the index has the potential to move higher. But before that, it could spend some more time in the band between 20,137 and 21,483.
The medium-term target on a break above 21,483 is 22,530. The index needs to close below 20,000 to make the medium-term view negative.
The Nifty too, moved sideways and closed 39 points higher. But the index is poised at its key resistance at 6,313. If the index is able to move strongly above this level on Monday, it can move on to its previous high of 6,415, where it is expected to stutter.
But the inability to move higher on Monday will drag the index down to 6,202 or 6,130 over the next week.
The short-term view will, however, turn negative only on a close below 6,130. The medium-term trend in the index is positive. The upmove from the low of 5,118 appears to have entered a consolidation phase. The sideways move since the November peak of 6,342 is part of this consolidation phase.
The medium-term view will remain positive as long as the index trades above 5,923. But sideways movement between 6,000 and 6,400 is possible for a few more weeks before a breakout takes place.
Medium-term target on break above 6,400 is 6,727.
Most benchmarks ended the last complete week of the year on a high. The CBOE volatility index declined to 11.7 this week as investor confidence remained high.
European indices, such as the CAC, the DAX and the FTSE recorded strong gains last week resulting in the DJ Euro STOXX 50 closing at a two-year high last week.
The Dow Jones Industrial Average closed 257 points higher last week to end at a new life-time high.
The short-term trend in the index will be threatened only on a close below 16,174. The medium-term trend will remain positive as long as the index trades above 15,703.
Many of the Asian benchmarks such as KLSE Composite, Nikkei and Taiwan Weighted index closed at record highs last week.
The movement in the US dollar index is the key to determine the continued flow of money into the emerging markets. This index is holding close to its medium-term support at 79. The next support is at 77.5. Breach of this level will mean that the dollar index will head back to the 2011 lows.