Ashish Kyal view on Sensex in Economic Times section of Navbharat Times

Sensex is lacking momentum even after touching new highs!

The below is the English transcript of article by Ashish Kyal, CMT Director of Waves Strategy Advisors in Economic Times section of Navbharat Times.

Sensex and Nifty both made new life time highs in current month of December. Both the indices crossed above the life time high levels of 2008. But crossing a level should not be the sole reason for believing the uptrend but it has to be supported by Volumes and strong momentum.

Sensex touched new life time highs on 09^th December 2013 at 21484 after the state election outcome which showed that a clear majority is possible in upcoming Lok Sabha election in 2014. However, after having a strong Gap up opening prices failed to sustain at new highs and started moving lower from the very next day making a low near 20600 levels last week. From medium term perspective, this simply indicates that positive news is also failing to generate strong momentum and market gets nervous everytime it hits new highs.

Global outlook: Everyone globally was eyeing the FED stand on tapering last week. Finally, FED announced that it will reduce the purchases of assets under QE3. Everyone expected world equity markets to react strongly on negative side as the liquidity will reduce but as soon as the announcement was made US markets started rallying and closed up by more than 1.5% touching life time highs. Trading solely based on news can therefore be very challenging and one should have atleast basic technical analysis techniques to understand the market trend. As per this technique the trend remains positive on US markets which are at life time highs and food for thought is that the crisis of 2008 originated in developed markets that are giving better returns since the lows made in 2009 then against developing markets like India which is still struggling as soon as it touched new highs!

Current week can carry minor positivity and short term outlook:  Sensex reacted positively after RBI maintained its status quo on repo rate and kept it unchanged. There can be short term positivity expected in this week as long as 20600 remain intact on downside. Sensex can touch new highs near 21500 but we think lesser number of stocks will participate and the up move will be on lower volumes and momentum. This level of 21500 is at very important trendline resistance which is valid since 2009 onwards and is sloping upwards. This trendline already acted as strong resistance for 5 times and prices have constantly failed to cross above it. The resistance as per this trendline is near 21500 & this time as well prices should fail to cross above it.

Relative strength index (RSI) a very important technical indicator is already showing that the new highs made on 9^th December was on slower momentum and currently as well equity market can touch new highs but momentum will further reduce.

In short, one should trade with positive bias this week but with strict stoploss and clear targets. Also proper sector and stock selection will be important. IT sector has continued to outperform during uncertain period and stocks from this sector remains our favorite pick.

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Media: Ashish Kyal market outlook in The Economic Times section of Navbharat Times

English Transcript of the above article:

For Indian equity markets May and June so far have been tough months from both trading and investment perspective as Sensex has moved by more than 300 points in single day on almost 8 occasions.

We think Indian equity market is moving in a big range and since start of 2013 Sensex is moving between 20300 and 18100 levels. From medium term perspective, prices have to break above or below this range for a clear direction to emerge.

Over near term, Sensex showed a smart pullback on Friday and recovered by more than 350 points in single day. This indicates that we can see some positivity in this week. All eyes will be on RBI monetary policy announcement today which can trigger the short term direction. We do not expect repo rate cut since the complete impact of previous rate cuts is yet to be seen in the economy. Also the widening Current Account deficit and fall in Rupee will be a major factor to be considered that might prevent RBI from lowering policy rates.

Rupee has been one of the major concerns over past few months. INR depreciated not only against US Dollar but against major currency pairs like GBP, JPY, EURO. Since start of May Rupee against US Dollar has depreciated from 54 levels to near 59 seen on 11^th June 2013. Increase in Gold imports has been one of the factors responsible to increase the Current Account Deficit and in turn putting pressure on Rupee. Government has taken corrective measures last week by increasing the import duty on Gold from 6% to 8%. This should result into stabilization in Rupee and we can already see some appreciation in INR over past few days. Also the reform announcements and positive assurance from Finance Minister will lead to short term stability in equity and currency markets.

Defensive sectors like FMCG and Healthcare should outperform over near to medium term. One should avoid investing in smallcap and midcap sectors as they look vulnerable in current fall. The other sectors like Oil & Gas, Capital Goods, Technology are in months long consolidation and sectors like Metals, Realty, Power are in strong downtrend. From investment perspective during tough time defensive strategy should be adopted and so FMCG, Healthcare looks promising.

In this week we can expect some positive movement and Sensex can move towards 19500 to 19700 levels as prices have managed to close back above 200 days Moving Average. On downside 18900 should act as important support. Please remember we are living in challenging times and prudent risk management along with money management is the key to be a successful trader or investor!