The rather exaggerated response to the RBI's move last Monday stresses the fact that the path of least resistance is currently downwards. Another spunky fight back was required to pull Sensex back from the brink. What is worrying at this juncture is the underperformance of our equity markets vis-à-vis the rest of its global peers in March.
Autos took it on the chin and the BSE auto index is now headed towards its June lows. Healthcare and metals can offer refuge in these choppy times. Mid-cap and small-cap stocks are in a state of hibernation and are best avoided.
A cautionary stance adopted by market participants ahead of the earnings season was reflected in the low volumes recorded last week. FIIs were selling in the cash segment last week. But they have been net sellers in the derivatives segment on days that the market fell and net buyers on the days that the market recovered. Such myopic activity reflects the general air of indecision prevalent in the market.
This ambivalent air is echoed in the daily momentum indicators as well. The weekly momentum is showing the first signs of cracking. The 14-week RSI is positioned at 46 and the 10-week ROC is beginning to move deeper in to the negative. The 10-month ROC will be an interesting oscillator to track over the next two months. It is poised above the zero line. This indicator has not dipped in to the negative since 2003!
Sensex reversed from a low of 12425 last week. The 200-day moving average has once more come in handy in supporting the index. The e-wave counts are unaltered. The medium term outlook stays negative as long as Sensex stays below 13800. The short-term trend is currently sideways. The second wave from the top of 14723 could be evolving in to a flat pattern.
The next minor wave of this flat can take Sensex higher to 13086 or 13495 next week. Any up-move will struggle to cross the 13500-level, as a cluster of technical resistances is present there. The outlook for the week will, however, turn negative if Sensex fails to rally past 13000. The downward targets in this scenario would be at 12359 and then 11992.
Investors can bide their time till the market makes up its mind about Infosys' earnings and guidance. Traders should stick to intra day trades.
Nifty reversed from a low of 3617 last Monday. The recovery thence has not been strong enough to make the short-term outlook positive. Wait for a rally past 3800 before playing long with a target of 3820 and then 3946. Failure to get past 3800 will be a cue to play short with a stop at 3825. The downward targets would be 3594 and then 3486.
The important resistance that investors need to watch out for is around 3900.
Equities across the globe had a splendid week, with many of the indices leaving the woes of February far behind and hitting new highs. The out-performers included many Asian markets such as China, South Korea, Indonesia and Taiwan. India was at the bottom of the heap with Sri Lanka and Pakistan. Neighbourly solidarity!
Nymex light crude could not get past the resistance at $68 and eased down towards $64 on the resolution of the Iran-UK standoff. The long-term average present at $63 would now be closely watched. Fall below this line can take the price to $60.5. The medium term outlook, however, continues to be positive.