Sensex (15237.9)
Sensex kept up the façade of an indomitable uptrend even as the broader market succumbed to selling pressure last week. BSE Midcap Index ended 3 per cent lower while BSE Smallcap Index was down 7 per cent. With the talk of sprouting economic foliage getting a trifle stale, the Union Budget has to throw some really strong surprises to keep Sensex from heading southward too.
It is however a relief to note that the run-away rallies in lesser known stocks have terminated and sanity has returned to our equity market. Pockets of lingering optimism in large-cap stocks are however keeping the Sensex afloat. Market breadth turned negative on many sessions during the week. Volumes were robust.
There is a covert correction taking place in Indian equities over the last couple of weeks. Sensex and Nifty have been trudging sideways with momentum plunging significantly while individual stocks have declined over 10 per cent. Such a trend is reminiscent of the rallies in 2005 and 2006 where Sensex kept moving higher despite overwhelming scepticism among market participants and weakness in second and third tier stocks.
The trend in US and European indices is equally ambivalent. Most indices are moving sideways near key resistances. While fundamentals and the magnitude of the current up-move warrant a decline, liquidity sloshing around in global financial markets might cock a snook at everyone by engineering yet another leg of the up-move.
The medium-term up trend from March lows continues to be strong in Sensex. Investors can remain sanguine as long as the index holds above 13500. If there is a close below 13500, it will suggest the onset of a correction that can pull the index lower to 12500 or 11000 over the medium-term. As mentioned earlier, the strong post-election rally that took Sensex past 13000 has lowered the probability of a decline below March lows.
On the higher side, Sensex is nearing the key intermediate resistance at 16000 that is 61.8 per cent retracement of the down-move from 21206. Extrapolation of the first leg of the up-move from 8047 gives us the next target of 16332. Unless there is a big bang budget this July or the global equities get unduly ecstatic, these levels can rein in the current medium term up-move.
A range-bound movement between 14300 and 15600 is likely in Sensex next week. Immediate supports are at 14800 or 14300. Fresh purchases should be avoided on a decline below the second support since the next halt for the index can be at 13800. Resistances for the week would be at 15600 and 15830.
Nifty (4583.4)
The long-legged doji in the weekly Nifty chart reflect the tug-of-war between bulls and bears at these levels in the Nifty. That this is only the second negative weekly close for the Nifty since March is also significant.
A five-wave move from April 28 appears to be drawing to a close. Targets for this move are 4597 and 4791. If the index moves past 4791, next target would be 4904 that is 61.8 per cent retracement of the down-move from January 2008 peak.
Medium term view stays positive as long as Nifty holds above 4092. Subsequent targets are 3800 and 3400.
Supports for the week are at 4460 and 4320. Fresh longs should be avoided on a decline below the first support.
Global Cues
It was a week in which global indices clung to the gains recorded in the previous weeks, but only just.
Many indices had less than 1 per cent gains while other were marginally in red. CBOE Volatility Index ended 5 per cent lower for the week implying that investors were not unduly perturbed by the lack of momentum in equity markets.
The Dow meandered in a narrow band and ended flat at 8799.
As explained in this column, this index faces stiff resistance around 8800 and a medium-term reversal is possible from here. However, the up-trend from the March lows continues to be strong and conventional trend-following techniques indicate that a close below 8200 is needed before we can be assured of a trend reversal.
That both the Dow and the S&P 500 are holding above their 200 day moving averages is also positive for these indices.
The US dollar is the joker in the pack and sharp decline in this currency can cause turmoil in equity and commodity markets.
The dollar index traded on the Intercontinental Exchange that tracks the movement of the greenback against a basket of six currencies is very precariously poised at intermediate term support of 78.3.
Decline below this level will make the long-term down-trend resume in this currency.
Commodities retracted slightly last week. CRB index traded on NYFE closed half per cent lower.
But the decline is significant because this index has retraced 33 per cent of the loss made since July 2007 peak. The rally from December 2008 lows can end at these levels or slightly higher around 445.
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