Index Outlook: Looking for a foothold :: Business Line

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The weakening rupee kept Indian shares under pressure last week. From the beginning of May, the currency has been declining sharply on concerns that the US Fed would withdraw its monetary stimulus and also that the Reserve Bank of India would limit interest rate cuts. In the last five weeks, the rupee has fallen by 5.9 per cent, to near a record low . The rupee closed at 57.05 to the dollar for the week.

This decline followed weakness in other Asian markets as the investors were concerned about US jobs data. Following a better-than-forecast growth in US employment, the US markets shot up on Friday. This also helped European markets recoup some of their earlier losses but finished the week on a negative note .

Key events to watch out for next week will be India's stance on the Jet-Etihad deal, April industrial output data and the inflation numbers for May.

Oscillators signal that the medium trend is slightly under pressure in the Sensex and the Nifty. The short-term trend is diminishing as the daily oscillators have reversed lower and are on the brink of entering the negative territory from the neutral region.

Sensex (19,429.2)

The Sensex fell 331 points or 1.7 per cent in the previous week. It has just breached its short-term support zone around 19,564 which is the recent trough formed around this juncture and the Fibonacci retracement support level.

The index is just testing its 50-day simple moving average level at around 19,400. As the index has not significantly closed below the aforementioned support zone and is poised at around 50-day SMA, a rebound from this zone can result in the index trending upwards to 19,937 or to 20,200 in the ensuing week. Investors with a short-term perspective should tread with caution as long as the index stays below 20,200 levels. A conclusive breach of this level will pave way for an up move to 20,443 levels.

On the other hand, a weak start in the upcoming sessions and a strong decline below the aforesaid support zone can drag the index down to 19,293 or to 19000 levels. Further, the short-term trend will become bearish only if the index tumbles below the 19,000 mark.

Nevertheless, the Sensex continues to be in a medium-term uptrend and our view remains unchanged for this time-frame. Important support is positioned at 18,144. The possibility of an upward breakthrough to 21,000 remains openas long as the index trades above this level. Only a strong decline below 18,000 level will turn this trend negative.

Nifty (5,881)

The Nifty slipped 105 points or 1.7 per cent in the week ago. Short-term trend is down for the index and is currently hovering just above its next key support at 5,850 levels — this level also coincides with the important fibonacci retracement support level of the prior up move. The index is also testing its 50-day simple moving average at current levels. Rebound from the support at 5,850 can push the index higher to 6,000, 6,050, 6,120 or even to 6,230 levels in the near future. However, an emphatic decline below 5,850 can drag the index to 5,760 or to 5,700 levels.

The Nifty continues to be in a medium-term uptrend. Key trend-deciding level is pegged at 5,477 levels. A strong close below this level will threaten the medium-term view. If this level holds, the possibility of an upward breakthrough to 6,301 or higher is possible .

Global Cues

On Friday, the Dow advanced 207 points or 1.4 per cent on better-than-forecast jobs growth. It rebounded after testing key support at 15,000 levels. For the week, Dow was volatile and managed to recoup its initial loss and finished 0.88 per cent up. Continuing the uptrend, Dow can encounter resistance at 15,400 and then at 15,500. Strong move above this resistance will pave the way to achieve its medium-term target of 15,677. Conversely, the index needs to decisively close below 14,300 to indicate a downward reversal in its short-term uptrend.

The Nikkei 225 Index fell 897 points or 6.5 per cent last week, extending its bearish near-term trend.

In commodities, gold was volatile and tumbled 2.3 per cent on Friday to end the week on a flat note at $383.8 an ounce. On the other hand, light crude advanced $4 or 4.4 per cent to finish at $96 a barrel. It has significant resistance zone ahead at $98 and $100 levels and key supports for the ensuing week is at $93.6 and $92 levels.