Will Indian Stocks Disappoint Next Week?

S&P 500 analysis

Indian stocks ended this week on a strong note, posting 3.9% in gains. The benchmark Nifty 50 closed above 7850, helped by a strong global rally and some support lent by positive IIP data. Banks and Auto were the major gains, along with Metals.

India’s fundamental situation has also been improving with the sustenance of low oil prices. A ‘meeting-of-the-decade’ between OPEC and non-OPEC ministers will be held in Doha on Sunday. A positive agreement between the participating nations on the proposed production freeze might send the oil prices higher, thereby putting India at a slight disadvantage. India is an oil-importing economy, and higher prices inflate the import bill.

Technically, the Indian stock market has reached the upper end of the downward trading range. See the chart below:



Now, the market needs to seriously build on this momentum otherwise the gains will be hard to come by.

In this particular post, which analyzes a Nifty 50 Weekly Price Chart spanning a period of two years, I have outlined the broader downtrend. It can be easily seen that the Indian stocks have retreated repeatedly as it heads above a couple of exponential moving averages of 13-weeks and 34-weeks. This is not to say that the same will be seen again but it is a strong indication of caution.

Another thing that market participants should be looking out for is volume. From a closer observation, it becomes evident that in the entire downtrend, the weeks where the index dropped had higher volumes while the weeks when the market went up had lower volumes. Even this week, the volume remained subdued (see the last candle in the sub-section of the chart). This indicates that institutional investors, preferably mutual funds and FIIs, may be using the advances to reduce their exposure in Indian stocks.

Your Takeaway

Follow the above chart closely. The market may turn on its head next week, and bulls might be seen running for cover. Wait for a weekly close above 7900-7950 for a bullish confirmation.