Sensex moving in a range awaiting fresh triggers

past few weeks Sensex has been moving in a range of 26220 and 27350 levels and closed at 26560 in previous week. We can see good profit bookings at higher levels above 27000. This can also be a result of fair valuations that Indian equity market has arrived after the sharp rally that began in September 2013. The best performing sectors in this rally had been IT, Pharma and FMCG. These sectors have still managed to attract buyers at higher prices in expectations that the future earnings will be much better. With the start of earnings season many investors will be closely watching the results of IT major Infosys to get clues on their future guidance and it should act as short term trigger for clear trend.

RBI continued to maintain the key policy rates at higher levelsand has emphasized that they are not looking forward to cut the interest rates anytime soon. The reason being, if FED (USA) starts increasing the interest rates in 2015 this can result in short term volatility and increase the risk as short term liquidity will reduce. In India, there are some signals of easing inflation but it seems RBI will not cut interest rates unless inflation is seen below their target zone.

Sharp rally in US Dollar a concern:Another important factor which is a concern for commodities and commodity driven stocks is the sharp rally in US Dollar over basket of currencies. US Dollar has increased sharply over past few months against EURO and has still not showed any signs of reversal. This has led pressure on not only Bullions – Gold and Silver but other commodities as well.

Looking at Technical indicators: Along with fundamentals, it is very important to look at the technical indicators in order to understand the clear trend and important levels that act as crucial support and resistance. Sensex touched the high of 25375 on 16^th May 2014 after the election results were announced. Currently prices closed at 26567 in previous week. This is less than 5% increase in almost 5 months. It is an indication that the upside momentum has reduced and only specific stocks that have promising earnings delivery have attracted investors. Weekly momentum indicators are also showing some negative divergence which is a cautious signal over medium term. The long term trend still remains positive but one should not be surprised to see short to medium term correction.

Week ahead: Sensex formed a low of 26220 in the month of September 2014. This is not only a monthly low but also a quarterly low level which should act as an important support. A close below this level can be concerning over short term. On upside 27000 continues to attract profit booking. So for upside trend to emerge sustainability above 27000 will be required. As long as these levels are intact we can expect range bound movement to continue in week ahead!