The Hindu Business Line : Index Outlook

The resolute march towards a new high continues in the Sensex. Though the Sensex closed the week with a gain of 1.7 per cent, the climb is getting more and more arduous. Some of the pivotals like SBI, RIL and Infosys are flirting with their all-time highs. These stocks need to sustain the momentum if the Sensex has to reach the magical land beyond 12700.

The background indicators in the market are not very heartening. Volumes continue to be low. The high percentage of rollover of the September contracts points towards an unwarranted sense of smugness building up in the market. We are beginning the October series with an open interest that is nearing the May 2006 levels. That is not very comforting either.

The momentum indicators in the weekly chart are reaching overbought levels again. The 10-week ROC has attained the level last seen in May 2006. The momentum indicators in the daily chart are still diverging negatively. The inference that can be drawn from these indicators is that a correction can materialise anytime from here.

The tentative nature of the rally witnessed since August lends credence to our wave count that we are in a running correction that could be unfolding in a triangular pattern.

We could be still in the C wave of this triangle with the D and E yet to unfold. That makes us believe that the index will continue to move upward but with increasing bouts of volatility.

For the week ahead, the Sensex is expected to move up to 12541 and beyond that to 12631. The index would face stiff resistance in the zone between 12550 and12630. Short-term traders can book some profits here. The support for the week would be at 12160 and then12029. Investors would be better off enjoying the show from the fence this week.

Nifty (3588.4)

The Nifty achieved our upper target of 3605 last week and closed with a gain of 44.3 points or 1.2 per cent. The short-term trend is positive, as the sequence of higher peaks and troughs is unbroken. The upper targets this week are 3630 and then 3658. We can expect considerable resistance in the zone between 3630 and 3650 this week. If this zone is breached, there can be a rally to 3702. Traders can play long with a stop at 3540. Investors can stay sanguine as long as the Nifty stays above 3440. A fall below 3440 is required to signal a medium term trend reversal.

BSE Midcap Index (5148.3)

The BSE Midcap Index hit a weekly high of 5154.7 on Friday. This is the 61.8 per cent retracement of the fall from the May 2006 high of 6070.5. It will be interesting to watch if this index surpasses this resistance next week. If it does, then the mid cap stocks will launch into a fresh up-move that will take this index to its May 2006 highs once more. The support that needs to hold this week is at 4820.

Global Cues

The Dow Jones Industrial Average is on the verge of surpassing it all-time high of 11750.3 that was made on 14th January 2000. The DJIA, however, shied away from this record on Friday to close at 11679.1. The Nasdaq too closed the week on a strong note at 2258.4. Crude is rebounding from its recent lows in what could be a technical pullback in a down trend. Nymex light crude for November delivery closed at $62.9 on Friday. All the other equity markets too closed the week on a positive note.

Lokeshwarri S. K.

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