Policy action to dictate market movements - Angel Broking

The week started off on a muted note in-line with the quiet trading mood across the globe. On Tuesday, the bulls eventually gave up all hopes and we witnessed massive intraday fall of nearly two percent. This was mainly on the back negative developments across all major global bourses and substantial weakness in the Rupee. The pessimism continued till Thursday's session which led indices to fall below the previously mentioned 61.8% Fibonacci retracement level at 19022 / 5764.

However, very surprisingly, our benchmark indices opened with more than a percent upside gap on Friday morning and continued to advance as the day progressed. During the week, most of the sectors ended in the red with the Consumer Durables, Metal, Banking and Realty counters leading the decline; whereas the only sector Oil & Gas ended in the positive territory with nominal gains. The Sensex and the Nifty shed 1.29% and 1.23%, respectively, over the previous week's closing.

Pattern Formation

- The '20-week EMA' and the '20-day EMA' are placed at 19359/ 5869 and 19500/ 5909 levels, respectively.

- The '89-day EMA' and the '200-day SMA' are placed at 19417/ 5885 and 19128 / 5800, respectively.

- The daily 'RSI' and 'Stochastic' momentum oscillators are signaling a positive crossover.

- The Monthly 'Shooting Star' Japanese candlestick pattern has been activated.

- The daily chart now depicts a bullish 'Island Reversal' pattern.

Future Outlook

During the week, the bulls managed to garner some strength in last session after a dismal show for the first four days. On Friday, we witnessed a gap up opening which has led to the formation of a bullish 'Island Reversal' pattern. This pattern is considered as a strong trend reversal pattern, if it occurs at a significant support or resistance level. In the present scenario, the placement of the 'Island reversal' is not too convincing to conclude a very bullish outlook. Nevertheless, considering overall developments across the globe, initially we expect our benchmark indices to bounce towards the stiff resistance zone of daily '89 EMA' and '20 EMA', which are placed at 19417/ 5885 and 19500/ 5909, respectively. The positive placement of the daily 'RSI' and 'Stochastic' momentum oscillators augments this outlook. Further, only a sustainable move beyond last week's high of 19586 / 5932 would imply that the intermediate down trend is under threat. On the flip side, a sustainable move beyond below the weekly low of 18765 / 5683 would negate the bullish implication of the 'Island Reversal' pattern. This may trigger immense selling pressure in the market and hence, indices may slide towards 18636 - 18450 / 5638 - 5584 levels. Central banks across the world declare their monetary policies in the coming week and as a result volatility may rise going forward. Hence, we advise traders to stay light on positions and trade with strict stop losses.

Source : Equity Bulls

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