During the last earnings season, the market dipped with every good or bad set of results. For, the Street was in a mood to ignore any positive surprise as pessimism over India’s macroeconomic condition was at its peak.

But this time around, the market’s reaction to the December quarter numbers has been more measured and pessimism has been replaced by hope even though there has been no major change in the situation on the ground. In fact, the macro-economic situation remains bad as it was a couple of months ago; the only difference this time is that some of the large foreign investors seem to be believing that the worst has already been built into the prices. This is why they are even dipping into mid-cap stocks once again.

But is the optimism that the market has seen over the past couple of weeks going to gain further pace or is it going to fizzle out? This will become clear only when the results of public sector banks and capital goods majors come in, as they are expected to be the spoilers this season.

As far as news flow is concerned, the inflation numbers came down on the expected lines, though manufacturing numbers are still not in line with expectations. Luckily, the market is not pricing in any rate cut at the Reserve Bank of India’s (RBI) forthcoming policy review. So if there is no action by RBI, we are unlikely to see any strong selloff on the rate-sensitive counters.

The whole market was waiting for Reliance Industries to anno­unce its results. While they were expected to be bad, the actual numbers came in far below estimates and that may lead to fresh trouble in the market in the initial part of this week. Besides that, there has not been any major disappointment as the earnings numbers have been largely in line with expectations and short covering in banking stocks has helped the broader market gain weight. What has played an important role in lifting market sentiments is the improvement in rupee, which has appreciated against the US dollar over the past few weeks. This has brought in some relief to the country’s fiscal situation, which had been reeling under the twin pressures of rising oil prices and a declining rupee. The rupee is going to gain further strength once equity markets start seeing more inflows from foreign institutional investors.

As far as global markets are concerned, the macro indicators reflected further strength, showing that the health of the US economy is improving. Earlier only jobless claims numbers were showing that things were improving, but last week even the housing numbers showed improvement. Now it remains to be seen whether the US recovery would once again mean a drop in inflows to emerging markets as investors rush back to their home country. Around the same time last year, the under-performance of emerging market equities was mainly due to a reverse flow of FII money to the US and other developed markets.

As far as Europe is concerned, though the liquidity situation has improved after the recent steps by the European Central Bank, the real test would come only over the next few months when large amounts of debt come up for rollovers. This is going to weigh heavy on the minds of investors.

On the technical charts, the major indicators are now in buy mode as they have moved upward. But most of them are placed very close to the zone from where they have retreated. The moving average convergence divergence (MACD) is in buy mode, but it has been able to move into the positive territory. At the same time, the average and trigger lines have started converging with each other. There is a possibility that the market will open lower on Monday due to a decline in the RIL stock, and the index heavyweight has the ability to trigger a sell signal on this indicator. On weekly charts, the MACD is still showing a bullish macro-pattern. In case the market is able to form a higher bottom in the corrective wave, this indicator is going to show more strength. The 14-day relative strength index (RSI) is now placed in buy mode as it continued to move upward in the equilibrium territory. A similar trend is visible on weekly RSI charts, as it continued to inch upward after taking support at its earlier bottom.

As far as support and resistance levels are concerned, the first support for Nifty in this corrective move would come at 4,952, after which another support would come from the extreme short-term trendline at 4,880. Now if a fresh bull market has to resume, Nifty should not go below the 4,700 level. Otherwise, this rally would get dissipated into another bear market rally.

As far as resistance is concerned, Nifty faces a strong hurdle at the 5,130 level after which an extremely strong resistance comes at 5,285 from the long-term downward sloping trend line. If the index manages to cross this resistance, it would signal the end of the bear phase, which has lasted more than 15 months. Retail investors should wait a bit more to enter the market. But they can use any correction to enter specific stocks with a long-term perspective.