The Hindu Business Line : Index Outlook

The monotonous pace in the Sensex was enlivened by a sharp tumble last Monday that saw players scrambling to unwind long positions, as the spectre of May 2006 revived in the memories. There was, however, a brilliant fight back in the middle of the week that guided the Sensex up from an intra-week low of 11444.2 to close the week above the much-watched 12000 mark. In spite of all the pandemonium, the Sensex managed to continue the string of successive weekly higher closes, raising the count to eight.

The severity of the fall last Monday has not altered the technical outlook for our markets. But, it has helped to do away with the sense of complacency that had begun to engulf market participants. The mid-week counter attack was accompanied by an increase in volumes. FII selling in the derivative segment, too, slackened towards the end of last week and they turned net buyers in the cash segment as the recovery gained force.

The dip to 11444.2 last week was a correction of 539 points from its recent peak of 11983.4. But the fall is not significant enough to qualify as a correction of the upward move from the low of 9875. In other words, we are still in the third leg of the intermediate-term uptrend that began from the low of 8800 in the Sensex. Our medium-term target for the Sensex of 12000 has been achieved. We will wait for a firm close above the 12200 mark before initiating a fresh buy. The risk at this juncture remains high because we are awaiting the onset of the C wave from the peak of 12671 in May 2006.

The short-term trend in the Sensex is still positive. The Sensex will make its way towards 12072 and then 12163 next week. There will, however, be significant resistance in the band between 12130 and 12180 next week. There is a high probability that the Sensex will be unable to surpass this band in the short term. If the Sensex manages to get past this band, it can head for 12410. Support next week would be available at 11672 and then 11400.

Nifty (3478.6)

The Nifty did not replicate the performance of the Sensex last week. Though the Sensex hit 12000, the Nifty is yet to get to the 3500 level. The weekly gain was also a paltry 0.2 per cent. The short-term trend in the Nifty is, however, positive. It can make its way towards 3513 in the early part of next week. But we expect the band between 3500 and 3520 to cap this eight-week old rally in the Nifty. A strong breakout beyond 3520 is required to take the Nifty to 3578.

The support for the Nifty this week would be at 3389 and then 3328. Traders can buy on dips, as long as the Nifty stays above 3380.

BSE midcap index (5035)

The BSE midcap index tumbled with the rest of the indices last Monday, but recovered towards the end of the week to close almost unchanged from the previous week's close. This index is in a flat 3-3-5 formation since the low of 3692.1 hit in June 2006. The C wave of this flat has so far retraced 55 per cent of the fall from the May 2006 high of 6070. The index is currently moving sideways in what could be a terminal corrective pattern. The next target on the higher side would be 5162. The short-term trend will stay positive for this index as long as it stays above 4822.

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