Index outlook: Market puts up a resilient show :: Business Line

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The Indian stock market has held its ground despite being buffeted by the strong crash in the Chinese market. The Sensex and the Nifty have ended the week less than 2 per cent lower.

But as discussed earlier, there is a strong likelihood that the revival from the 26,307-low in the Sensex is just a corrective pull-back in a long-drawn downtrend. Last week’s decline supports this view, paving the way for a decline to 26,300 in the Sensex or 7,900 in the Nifty. It is therefore best to watch the market move next week to determine the medium-term trajectory.

The Greece crisis will probably fizzle out next week with the Greek Parliament voting in favour of accepting the terms of the bailout. It has pledged to cut spending, increase taxes and bring about changes to public pensions. It is now up to the European leaders to sanction a third bailout, which they will most probably do, to avert a break-down of the European Union.

The Chinese stock market crash too dominated the headlines last week and Indian stocks fell in tandem. However, as the problems with the Shanghai and Shenzhen listed stocks are specific to China — excessive retail investor participations, sharp increase in margin trading, valuation reaching a bubble zone — Indian stocks are not likely to be unduly affected by the goings on in China.

The halt in monsoon is however a cause for worry. According to the IMD, rainfall up to July 8 has once again turned 4 per cent lesser than normal.

Almost a quarter of the sub-divisions in the country — nine out of 36 — has reported deficient rainfall so far.

The progress of the monsoon will therefore be an important factor that investors will have to track over the coming week. The Consumer and Wholesale Price Inflation numbers to be released next week will also have a strong influence on the stock price movement next week.

How they oscillate

Following a triumphant close above the 200-day moving average last week, the indices have once again slumped below this line. Both the Sensex and Nifty are poised in the island between the 50 and 200-day moving averages, implying that a movement in either direction is possible from here on.

Oscillators in the daily chart continue to signal a sell. But the indicators in the weekly chart appear more stable now. The rate of change oscillator in the weekly chart has moved into the positive zone. If it continues there, it will mean that the worst could be over from a medium-term point of view.

Nifty (8,360.5)

The Nifty has been speeding downhill after hitting a high of 8,561 on Tuesday.

The week ahead: The index is however halting close to its short-term support at 8,330. The movement over next week can be as follows:

1) Upward reversal on Monday will take the index to 8,561 again. This is a strong resistance. If the index is unable to move beyond this level, it can fluctuate in the zone between 8,300 and 8,550 for a few weeks.

2) Target on a move above 8,561 is 8,667. The short-term view will turn positive only on a strong close above this level.

3) A weak opening will make the index decline to 8,277 or 8,180 in the days ahead.

4) Short-term view will turn very negative on a decline below 8,180.

We would like to wait for a week to determine the medium-term trend. If the Nifty moves higher, it will open the possibility of the continuation of the B wave of the correction that began at 9,119 peak. This wave can go all the way to 9,000 again.

Sensex (27,661.4)

The Sensex initially moved higher when the threat of Grexit appeared lesser, but the collapse in the Chinese market pulled the index sharply lower by Wednesday.

The week ahead: The Sensex has reversed after retracing 50 per cent of the down-move from the April peak. The decline is however halting at a key short-term support at 27,580. The index could move in either direction from here.

Key supports to watch are at 27,330 and 27,086. But if the Sensex manages to hold above 27,500, it can spend a few sessions in the zone between 27,500 and 28,300. Resistances for the index are at 28,335 and 28,617.

Global cues

Most global benchmarks recovered strongly after a weak start last week. European indices such as the CAC, the DAX and the FTSE closed with good gains. The CBOE volatility index also declined after hitting a five-month high earlier in the week.

The Dow declined over the week to hit a low of 17,797. But it recovered smartly from there keeping the short-term trend positive. The index needs to decline below this level to signal the possibility of a fall to 17,000.

The sharp decline in the Shanghai Composite Index last week has resulted in the index retracing more than 50 per cent of the gains made since the May trough. Next support for the index is at 3,200 that occurs at the 61.8 per cent retracement of the previous up-move.

The current slide could halt here. If it continues sliding, below 3,200, next halt is likely to be at the level of 2,000.