The strongest factor supporting the Indian markets is the fact that the US markets are still grinding their way up. This is most likely going to provide an impetus to the Indian bull
The fact that prices have not fallen shows that buyers still have strength and taking out the sellers.
Once the Nifty clears the May 2013 high the next resistance in price is the all time high of around 6350. The clearing of these levels then increases the potential that the Nifty will make the 1000 point move.
The Nifty seems likely to challenge its all time high based on a bullish chart pattern it formed after last week's price action.
Now with the Nifty gaining relative strength to the Sensex their roles have reversed. We feel the Nifty is stronger now as it rallied last week before filling the gap support level. The Sensex on the other hand went all the way into the gap before rallying again.
The Indian indexes are hammering support, increasing the probability that prices may go lower. The more times a support level is hit greater the chances of a breakdown.
Indian equity markets also need support from the US market to rally further. The last leg of the rally in India was a result of the rally in the US markets. When the US markets retreated a bit on Thursday, the Indian markets fell on Friday. With the strong drop in the US on Friday, we could see a corresponding drop in India on Monday.
The worrying fact for the equity market is that bond markets are not giving any indication that it believes the tightening will be postponed
From a long term perspective the Rupee continues to show relative weakness against the dollar. If you look at the chart you will see green uptrend lines and red downtrend lines. Notice that whenever the dollar is in a uptrend, the rupee is in a downtrend. This is to be expected.
US Treasury bonds are falling, and this is indicative of the danger to stock markets. Both the Nifty and the Sensex are vulnerable.
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The momentum in the Nifty over the last two days gives bulls an edge, but traders should not be so confident about market direction
The S&P 500 needs to break out of it's resistance zone, for Nifty to go higher. However, a policy boost from the Reserve Bank of India could also push the Nifty higher.
A drop in the US dollar index does not seem to help the rupee; this shows that the Indian currency seems to be marching to its own gloomy beat.
It is very likely that the Indian markets will follow the US markets at least to make it to its past all time highs
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