The opening on Monday morning on Indian stock exchanges is likely to be euphoric. But this feeling can peter out after a couple of sessions as the government gets down to the brass-tacks to tackle the ongoing crisis; sending a grim reality to the markets regarding the economic reality.
And then, there is no getting away from the fact that this rally from the March lows is already 10 weeks old and both global and local indices are currently showing signs of fatigue.
So, how far can a celebratory burst on Monday morning take the Sensex? We have been maintaining that the rally from March low is a counter-trend rally in a bear phase. But since it has moved past the resistance zone between 11600 and 11800, it can now attempt to move on to the next target zone between 12800 and 13000. This zone coincides with the trough made in July 2008 and is also 38.2 per cent retracement of the down-move from 21206.
It is difficult to envisage a move beyond 13200 just yet, but if short-covering exaggerates the up-move, next medium-term target is the 50 per cent retracement of the 2008 crash, at 14500. The 200-day moving average at 11000 would be the key medium-term trend deciding level. Investors should however keep the fact that the medium term up-trend from March lows is already mature and could terminate at any time, in mind, while trading the up-move.
Sensex has been moving sideways between 11600 and 12200 since May 4. This consolidation phase can be followed by an upward thrust to 12524 or 12621. If the rally extends beyond these levels, the subsequent targets would be 12814 and 13203. Short-term supports would be at 11540 and 11350. Fresh purchases should be avoided below the first support.
Nifty (3671.6) Nifty too is moving in a sideways range between 3550 and 3700 over the last couple of weeks. A break-out next week will take it towards our medium-term target zone around 3800. July 2008 trough at 3816 and key Fibonacci retracement at 3820 makes these two levels very important resistances. If there is a firm close beyond 3850, next target is 4300, that is 50 per cent retracement of the down-move from January 2008 peak.
Short-term targets for the Nifty next week are 3762 and 3790. A firm rally beyond these targets would propel the index to 3946. Supports for the week would be at 3510 and 3460. Fresh longs should be avoided below the second support.
Global Cues It was a week in which global indices paused their exhilarating rise and retracted slightly. CBOE volatility index moved sideways between 30 and 34 indicating that investors are not unduly perturbed by this correction.
European indices lost between 3 to 5 per cent and the DJ Euro STOXX 50 closed 4 per cent lower. Dow Jones Industrial Average recorded its biggest weekly loss since the rally began in March, closing 306 points lower.
The correction last week has however been quite mild and the index needs to close below 7750 before the current medium-term uptrend would be under threat. Reversal above 8100 would mean that the index would take a shy at 8900 or 9100 before this rally end.
Most Asian markets too began a correction last week. Philippines stock market was the only exception; gaining 3 per cent.
| Index may not go below 3,550-3,600 |
Trend is friendly
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