Markets indicate bounce is overdue

The Sensex exhibited choppy movement in a rather narrow trading band this week. The BSE benchmark index from a low of 18,779, rallied to a high of 19,167, and eventually ended with a gain of 147 points at 19,008. The intra-week range was just 390 points as against 908 points and 1,035 points in the preceding two weeks.

The good news is that the Sensex managed to hold its head above the 200-DMA (Daily Moving Average) on the daily charts, which is now at 18,717. And secondly, it also took support close to the lower end of the Bollinger Band on the weekly charts, which is 18,745. Further lower, the Sensex has support at 18,400, the medium-term (50-weeks) moving average. Deeper down, the index has strong support around 18,425 as per the yearly Fibonacci chart.

Given the multiple support levels ahead, one can expect a bounce from the current levels. However, that does not negate the fact that the current downtrend is negative. Hence, any bounce back from the current levels is likely to be intercepted with stiff resistance on the higher side.

Among the index stocks, TCS zoomed over 8 per cent to Rs 1,213. ICICI Bank, Bajaj Auto, Mahindra & Mahindra, Cipla and SBI were the other major gainers. On the other hand, Reliance Infrastructure shed nearly 8 per cent at Rs 737. ONGC, Tata Power, Hero Honda and Larsen & Toubro were the other major losers.

A holiday-shortened week on account of Republic Day, coupled with two major events — the RBI policy review and derivatives expiry — is likely to weigh on the trading sentiment.

The NSE Nifty moved in a range of 124 points, from a low of 5624, the index rallied to a high of 5748, and settled with a gain of 42 points at 5697.

The 200-DMA of the Nifty is at 5619, and the lower end of the Bollinger Band on the weekly charts suggests support at 5622. Further lower, the medium-term weekly support exists at 5520, and the yearly Fibonacci support is at 5500.

Next week again, the Nifty is likely to seek support around 5650-5620, and on the upside the index is likely to test 5745-5775. A sustained stay above 5745, is needed for a prolonged upmove in the markets.

The momentum indicators are not displaying any conclusive picture. While the 14-day RSI (Relative Strength Index) has bounced from close to the near oversold zones, the markets have to end higher on Monday to confirm a higher low for the RSI, which would favour the bulls. The ADX suggests that neither bulls nor bears hold the upper hand.

Further, the MACD too seems to have bottomed out, and the Stochastic Slow is in an extremely oversold zone. These two indicators indicate that a bounce is overdue.