The week ahead: Nifty to test key ‘200 DMA’ levels

Stock markets would now face the “acid test” as we now have reached the 200 DMA (day moving average), both on the Nifty (5211) & Bank Nifty (9971).

Technically, these indicators show an overbought market due for correction and also having reached key resistance levels, we could see some much needed profit taking. Also, in 2011, whenever indices tried to stay above the 200DMA, they saw strong selling emerge which pegged gains back sharply. The 200 DMA is the most widely tracked indicator both technically and fundamentally and any day close of these indices above that level would lead to a further upside.

Last week, we indicated that an ‘Inverted Head and Shoulder’ was being formed on the Nifty chart and the right shoulder above 5100, would consolidate and then break out on the upside with target’s closer to 5300/5400.The only worry is the speed with which the Nifty has moved up gaining 13 per cent from the low of 2 January 2012.

The RBI CRR cut by 0.5 per cent to 5.5 per cent vastly improved the sentiment. Also, better than expected corporate results from large companies was positive. In the coming week, see results from the ‘laggards’. This means companies from infrastructure, real estate and power sectors where disappointing results are expected.

The street could see some consolidation or profit booking and wait for more news regarding Eurozone, with the Greek debt situation holding centre stage. The mood though seems very “Bullish” with the “VIX indicator”(Volatility Index) trading at levels of 21 which indicates high optimism and complacency. This was last seen in the first week of August 201 when the Nifty was trading close to 5550 and saw a very sharp fall thereafter.

Among top gainers of the week, BSE Capital Goods index rose 5.64 per cent while BSE TECk rose by 5.18 per cent. Top three gainers of the week include JSW Energy, which jumped 22.15 per cent, Essar Oil gaining 20.21 per cent and Sintex Industries rising 16.50%. The losers included Alstom Projects India shedding 6.74 per cent while Hero MotoCorp losing 6.61 per cent. United Breweries was down by 6 per cent.

Factors to Watch:

* Ability of Nifty to stay above 200 DMA. The resistance level for Nifty is at 5211 and the support level is at 4951.
* Global euro zone events with dollar-euro price moves and Greek debt being key
* results of high beta companies from infrastructure, reality and capital goods sectors.
* the rupee surge and bond yields.

(Sanjeev Bhasin is an independent investment advisor based in New Delhi and an expert on NDTV Profit’s daily show ‘Buy or Sell’).