The Hindu Business Line : Index Outlook

Indian markets spent the last week in a somnolent state not going anywhere in particular. The Sensex managed to pull off a positive close thanks to some rearguard action by the heavyweights such as Reliance and SBI towards the end of the week.

News-driven activity was seen on select counters, even as the overall market dithered.

The extremely narrow range seen in the Sensex over the last eight trading sessions denotes that our markets are evenly divided between the bull and the bear camps.

The Nifty put-call ratio continues to be high, pointing towards portfolio hedging by funds and HNIs.

The heavy sales by the FIIs in the derivative segment last week, too, points towards some directional calls being taken on our market at these levels.

We have always maintained that caution and skepticism is preferred over irrational exuberance as the later hastens the market towards a sharp correction.

The chart patterns have not undergone any change last week. The sequence of higher troughs and peaks since the low of 9875 in the Sensex is unbroken.

The shallow correction to 11297 last week denotes the underlying strength in the market.

The momentum indicators on the daily chart are weak and are diverging negatively. This means that we are undergoing a short-term correction over the last two weeks.

But this correction is making prices move sideways rather than taking them sharply down.

The weekly charts are not showing any signs of weakness, yet. But the target of the third leg of the upward move from the low of 8800 in the Sensex falls at 12015. It would be best to wait for this level to be breached before taking fresh exposure in the markets.

We cannot find any feasible argument for taking the Sensex any higher from these levels, but if it does cross 12015, we are assured of a new all-time high.

The Sensex can move up to 11708 and then to 11779 this week. We have the convergence of many counts around the 11750 level on the Sensex. Some resistance can be encountered here. We can also expect some volatility to surface as the August series heads for expiry in the derivatives segment. The support this week would be at 11300 and then 11101 in the Sensex. The outlook for the Sensex would stay positive as long as it stays above 11100.

Nifty (3386)

The Nifty hit an intra-week high of 3402.7 before ending the week with a gain of 29 points. The immediate upward target this week would be around 3430.

This is the short-term resistance that traders need to watch out for. The target beyond 3430 would be at 3468. Supports this week would be at 3292 and then at 3234. The outlook on the Nifty would remain positive as long as it stays above 3230 this week.

Global Cues

Flat was the theme that ran across most global equity markets last week. However, some markets in Asia such as Taiwan, Thailand, Hong Kong, Philippines and Pakistan saw a deep sell-off.

Other markets moved sideways with a negative bias. Nymex crude for October delivery spiked in the later half of last week to close at $72.5.

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