Market to remain sideways

The Sensex took just 17 working days to test an intra-day low of 13779.88 points on August 17, 2007 from around 15868 points. The weakness in the world markets started on July 13, 2007, but remained sideways till July 23, and the markets came off their highs the next day. The global weakness was expected because of overbought situations, but what was not expected was the high intensity which we had seen in the past two weeks.

Indices like Dow and Sensex even fell below its 200 daily-moving averages and fortunately closed above on Friday, giving investors signs of consolidation. Technical analysts are giving high priority to 200-day moving averages of stocks and indices. Once stocks or indices fall and trade below their 200 DMA, they may remain weak, and higher levels of selling can be expected.

At present, the Sensex and Nifty are trading in oversold territories, which is helpful for the markets to recover from their lows. The weekly Relative Strength Index (RSI) of major indices, including Dow, Hang Seng, Nikkei, CAC 40, and Nasdaq is in the oversold territory, which may further help the markets recover in the short run.

On the other hand, monthly Indices’ Charts are still showing weakness. There is an indication that after consolidation, a weak or more of selling can be expected. This is further supported by the weekly moving averages of the world’s indices. Monthly indicators are suggesting sideways movement for one more month.

For the Sensex and Nifty, 13971 points and 4062 points are the 200 DMA levels, respectively. As long as the Indian markets are above their respective indices, we may see renewed buying interest, and the Sensex may move towards 14864 points and Nifty towards 4358 points, respectively.

But one has to keep in mind that monthly indicators can once again destroy market equilibrium at any point of time. Apart from the monthly indicators, some of the heavyweights are also trading below their key supports, and it is always a threat to the upward journey.

Majority of the index stocks are oversold, but some sectors are technically weak. Automobiles, pharma and oil are some of these sectors. On Monday and Tuesday, we may see a recovery, but counters like Tata motors, Mahindra and Mahindra, Cipla, Dr Reddy’s, BPCL, HPCL and IOC may attract major selloff.

ACC, Grasim, Gujarat Ambuja are heavily-oversold and recovery is expected, but the selloff again can bring these stocks down to further lows because these counters are absolutely weak. On the buying side, one expects upward movements in reality stocks like DLF, Unitech and GMR. Reliance Communication, Reliance Energy, IFCI and IDBI may witness sustained buying interest.