INDIAN STOCK MARKET

Major indices posted weekly gains for the third time in a row. For the latest week, the Sensex and Nifty closed above the crucial levels of 17,000 and 5,100 respectively, up 3% over the previous week’s close.

The rally was backed mainly by momentum stocks like Reliance Capital, RNRL, Reliance Communications, Reliance Power, HDIL, Lanco Infratech, India Infoline and Adlabs Films. Traders have taken an active interest in mid-size stocks like Chambal Fertilisers, Tata Teleservices Maharashtra, JP Hydro, Arvind Mills and MRPL. Volumes were above average. This indicates that traders are slowly regaining their confidence.

Technical Aspect: Last Monday, the market opened higher on the back of strong positive global cues. The opening was gap up. The most interesting part was that it held throughout the week. This must have set the tone for the strong rally on Friday. It was the first gap up opening on a weekly and daily basis between 4,985 and 4,991 for the Nifty (16,570 and 16,589 for the Sensex). It shows that bulls are impatient and moving in for the kill, while the bears are suddenly finding themselves on the backfoot as the move was against their expectations.

The coming week would be more event-based. The trend of the market may depend mainly on the outcome of the US Federal Reserve meeting on May 1). Both events are crucial, and will set the tone for the near-term trend. We feel that even in case of any adverse development, there is no likelihood of a steep downtrend. Technically, the market appears poised for an uptrend in the short term, medium term as well as long term.
There is a fair chance the market may reach 18,300 and 5,500 in the coming few weeks, as the trend is strongly placed on the positive side. However, the short-term trend seems to be over-retraced (not overbought as open outstanding positions are still at their lowest levels of the year). It is approaching the major hurdle of 17,300/5,200. This is the 38% retracement level of the entire fall between 21,206 and 14,677 (6,357 and 4,449 for the Nifty).

Even the levels of the 200-day simple moving averages are pretty close to it (17,380 for the Sensex and 5,150 for the Nifty). One must be cautious around these levels and avoid buying those stocks which are far away from their recent support levels.

On the lower side, the levels of 16,500/4,900 may act as major supports for the market. One can search for buying opportunities in oil and gas, metals, power and, especially private sector bank stocks, as these sectors show a greater potential to ride the bull run. This may happen between 16,000 and 18,000 for the Sensex (4,800 and 5,400 for the Nifty).