Markets: Expect Resistance Ahead

The markets had another positive week gaining another 2.5 % to end at 4866. Let us try and see the factors which would drive the markets in the week ahead. There is a slew of corporate earnings ahead.

1. The early results have been lackluster. Infosys disappointed with its guidance and HDFC results also were nothing to write home about. The early results usually set the tone for the results ahead. If good results do not come in this week, then expect poor results over all. The companies declaring outstanding numbers usually declare their results early.

2. This has been one of the slowest pullback rallies. The markets tanked from 5099 to 4532 in 9 trading sessions. In 19 sessions after that we have pulled back about 63 pc. We have taken about twice the sessions to pullback only 2/3rds of the fall.

3. If this is wave 2 of C5 then targets were 4863, 4966 and 5066. In any case, 5100 is the top for the markets.Beyond that we can see the contours of a new bull run.

4. In the immediate term, both the Bollinger Band and the other indicators are overbought and I expect a correction in the first half of the week at least. Supports on the downside are the trend line support at 4765 and 4790 - 4800 band. Below 4672, one can say that the trend has turned down.

5. The Euro downgrades will ensure that the week will begin on a soft note.

Strategy: 4671 on the downside is a shorting point for the positional trader. For going long, wait till 4900 is taken out along. In between, sell on rises and buy on dips. The only gainers in this series seem to be option writers. We have a curtailed expiry one day earlier on 25th Jan due to Republic Day on 26th. The decay in Options will be faster for this series.
Point to note: We never has 2 consecutive positive monthly closes since this bear market started in November 2010. If January is positive then February should be negative.

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