Index Outlook: Stocks fighting uphill battle :: Business Line

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Sensex (18,326.4)

Sensex revived slightly in the early part of the week as progressing monsoon sent a breath of fresh air through equity markets. But harsh readings from economy coupled with re-stirring of the 2G-hornet's nest made stocks wilt once again and close the week with marginal gains.

The mood among investors and traders continues to be lackadaisical and this is reflected in plummeting volumes, especially in the derivative segment. Market participants perhaps found it more amusing to watch the drama surrounding the latest anti-corruption fast.

FIIs turned net buyers again. Open interest is however creeping up and so is the proportion of puts in the OI implying that more traders are betting on market declining from these levels.

The decision on diesel price hike scheduled for next week could cause some reaction.

Economic data will continue to be scanned with great interest for more signs of slowdown in the economy.

The surge in the early part of the week helped the 10-day rate of change oscillator climb in to positive territory. But the slide that followed has pulled this indicator lower to the zero line again, implying that the near-term view continues to be ambivalent.

The weekly oscillators are also hovering in the neutral region, on the verge of moving in to bearish zone.

Interestingly, oscillators in the monthly chart are also poised in neutral zone following a decline. This implies that the zone around 17,800 where Sensex is currently halting is a critical trend-decider for the medium and long-term as well.

Decline below this zone would mean that the down move can accelerate turning the medium-term view to negative.

When the first leg of the current decline took place between last November and February, the other global equity markets were in robust shape and hitting new peaks. The developed markets including the US are only just beginning to crumble under profit-booking.

Once those markets begin correcting, India could also join in, making the third leg of this decline reach even the second target of 16,493.

According to Fibonacci retracement also we get two critical supports at 16,758 and 16,118. So the entire zone between 16,000 and 17,000 should be an area where the brave-hearted start cherry-picking.

In the short-term, Sensex faces a strong resistance in the zone around 18,700. Inability to move above this level will mean that the index can head lower to 18,124 or 17,786. Halt around 17,800 again will result in the index moving in the range between 17,800 and 18,600 for few more sessions. Such a move will retain the bearish short-term bias.

Strong move below 17,800 will pull the index down to 17,420 or 16,647 over the ensuing weeks. Conversely, targets on a close above 18,700 are 18,915 and 19,126. The uptrend can be taken seriously only on a close above 19,126.

Nifty (5,516.7)

Nifty too turned volatile after recording the peak 5,597, just below the resistance at 5,608.

As explained in our last column, there is a convergence of resistances around this level. Failure to get past this level in the early part of the week can cause a decline to 5,434 and 5,328 in the days ahead. If the index stabilizes around the support at 5,330, there can be a range-bound move between 5330 and 5600 for few weeks. Such a move will retain a bearish short-term bias. Breach of 5330 support will usher in a decline to 5224 or 4989 over the ensuing weeks. Targets on a strong close above 5,600 are 5,640 and 5,710.

Global Cues

Global stocks were jittery as the crisis in Greece worsened. Moody's Investors Service' downgrading of Greek government's credit rating and the deposit and senior debt ratings of eight Greek banks stoked the nervousness. Most benchmarks closed 1-2 per cent lower.

CBOE VIX closed higher at 17.9 after hitting the intra-week peak of 19.8. DJ Euro STOXX 50 is once more close to its medium-term support at 2800.

Bounce from these levels will maintain a positive outlook for the medium term. But the double-top formation in the weekly chart is a little disconcerting.

The Dow recorded a sharp 290 points decline last week. This is the fifth consecutive week when the index has ended in the red. Immediate support for the index is at 12,070. If this level is breached, the index can decline to 11,555.

As explained earlier, medium-term trend will turn negative only on a close below 11,640.

Asian benchmarks were relatively resilient and closed with minor profits.

Sharp decline in dollar over the week made commodities including gold and crude to spike higher.