Sensex (14625.2)
Sensex treaded water in the early part of last week as the expiry of the May derivative contracts dominated proceedings. Fresh resolve displayed by the new (?) Cabinet to make a difference this time around, provided the impetus to help Sensex close the week with over 700 points gain.
The bizarre rallies in some small cap stocks were the dark clouds in an otherwise bright blue sky.
Volumes were extremely robust both in cash as well as derivatives segment. Advance decline ratio soared to levels not witnessed since the last quarter of 2007. FIIs started ploughing in funds in to Indian markets again last week after a brief hiatus.
We begin the June series with relatively comfortable open interest around Rs 65,000 crore though the short positions that can cushion falls have also reduced substantially.
Oscillators in the daily chart are at 18-month highs but there is no negative divergence in these indicators yet implying that the near-term outlook stays positive despite the sharp up-move recorded over the last two weeks.
What is worrying is the 10-week rate of change oscillator at 62, a 10-year high, since spikes such as these are unsustainable. Monthly oscillators are just approaching the bullish zone. One more spurt is required to make the long-term outlook positive for Indian equities.
Sensex recovered from an intra-week low of 13518.
The gap formed on the Monday following Lok Sabha election result, between 12219 and 13479 remains unchallenged and the ceiling of this gap at 13480 will be a key short-term support.
The index could follow either of these trajectories over the near term,
a) It can reverse lower from the resistance between 14900 and 15200 and head lower towards 14000 again. Such a move will be construed a halt before the index readies to make another assault to move clear of the 15000 mark.
b) A strong break-out above 15200 would mean that Sensex is heading towards the target band between 15900 and 16200.
A close below 13450 would be needed to signal a short-term trend reversal.
The medium-term trend too continues to be up and a close below 12200 is needed to weaken this trend.
However, caution should not be discarded since the index is approaching key intermediate term resistance levels that are 15284 (55 per cent retracement of the down-move from 21206) and 16180 (61.8 per cent retracement of the down-move).
According to e-wave counts too, Sensex appears to be nearing the end of the up-move from March trough.
Sensex could move higher to 14930, 15034 or 15284 in the week ahead. The index can waver as it nears the 15000 mark and some bumpiness can be expected around that level. If the upsurge continues beyond the third target, the next halt can be at 15970. Short-term supports are at 14000 and 13518.
Nifty (4448.9)
Nifty reversed from an intra-week low of 4092 to close with 210 points gain.
The index can move on to 4509 or 4534 in the short-term. If Nifty reverses from the resistance zone between 4500 and 4550, it will then decline to 4250 or 4092 in the near term.
However, a surge above 4550 will take the index to 4646. Short-term traders can buy in declines with a stop at 4090. Nifty is also near key intermediate term resistances that are 4456, 4646 and 4904.
The up-trend from March lows can end at either of these levels. Close below 3750 is however needed to signal a medium term trend reversal.
Global Cues
Global equities displayed a steady trend last week. CBOE volatility index spiked to 35 on Tuesday tracking weak equity markets. But it declined later to end the week below 30 reflecting the complacent mood among investors.
Dow remained in the range between 8200 and 8500 last week. A rally to the next resistance zone between 8900 and 9100 appears likely unless there is an emphatic close below 7700. Latam markets such as
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