The trend went more clearly bullish this week as the market responded to renewed FII buying. Underlying the strength of returning foreign interest was a sharp hike in the values of their favourite segments. Broad market signals were quite positive as the intermediate trend entered its sixth bullish week. The heartening fact was that FII buying was coming despite weak trading signals across the world after Wall Street failed to respond despite rate cut expectations.
The week started slowly but the Sensex stayed above the critical Head & Shoulder neckline at 3085 points. It breached an important resistance at 3140 and then sailed through to end at 3223.57 points which was an advance of 4.29 per cent. The Nifty was up 3.69 per cent. The Dollex closed up 3.79 per cent while BSE200 advanced 3.75 per cent.
The background signals were uniformly positive. The advances-declines ratio stayed positive at 682 scrips rising versus 447 scrips declining. Trading stayed thinner than desirable in the B2 group but volumes showed improvement across the board.
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Other broader indices such as the Allshares index showed much improvement at plus 3.46 per cent This was the post-April high for the 3500 stock index. The BS Midweighted 100 shares index showed a strong advance rising 5.24 per cent. This tracks the largest midcaps in the market and is a useful indicator of FII interest since that is their favourite shopping mall. The BS Midcaps 250 which also tracks FII favourites rose 2.84 per cent while the BS-Smallcaps rose 4.05 per cent.
The Sensex had tested 3185 points in intra-day trading on the upside before slipping back to the 3090.72 on Friday. Hence it registered higher peaks the moment is jumped past that mark on Thursday. Even more heartening, the Sensex tested 3250 before pulling back on Friday in the wake of bull-unloading. Right now the intermediate trend is definitely up, while the short-term trend may see a reaction starting Monday. The next strong support is at 3140 which is in a critical zone that has seen a major fight between bulls and bears. There could also be support at current levels and at 3190 points.
The positive divergences such as higher bottoms versus lower priceline bottoms earlier in the RSI and ROC seem to be confirmed by the rise this week. The intermediate momentum may be enough to register a target of 3450 before this trend breaks. Moving average systems are clearly in buy mode in short and intermediate timeframes. This implies that the trend is now strongly established and could stay in force for another four weeks or so. The next upside target will have to be 3265 plus.
But the long-term trend is still down by definition. This will be tested only if there is a breakout above the 200 day moving average. The intermediate trend may turn out to have only trading implications if it breaks down below that level. Fibonacci time zone analysis indicates that there could be a critical phase after Diwali when the market will again test for lower bottoms. That is also when the trend in corporate second quarter performance will be established.