The Hindu Business Line : Index Outlook

The Sensex lost its foothold and slipped in the early part of the week to an intra-week low of 12178.8. But it was back on its feet in no time and the weekly loss was a mere 0.6 per cent. It can be classified as a week in which the Sensex paused to gauge the road ahead. But the peak of 12671 is well in sight.

The market breadth was good last week. The BSE Midcap index gained 2 per cent; the Smallcap index gained 2.7 per cent. Both these indices have made a promising breakout that can make the party in second-rung stocks continue for some more time. Volumes were decent. The only dark cloud last week was the resumption in the FII selling.

That can be attributed to not having had a significant correction since July 24. The first signs of strain are beginning to appear on the weekly and monthly charts. Weekly oscillators have reached overbought levels. Daily momentum oscillators are in sell mode. But the 10-day ROC is still above the zero line and the 14-day RSI is at 63. The inference that can be drawn from this data is that though the going might get rocky, the rally is not under any threat as yet.

We remain with the wave count that a triangle formation is under way from the low of 11297. The C wave can move a little further up before the D wave unfolds to drag the indices lower. As far as our long-term count for the upward move from the low of 7656 is concerned, we have maintained that it is hard to nail down the target of the B wave. It can go to the beginning of A wave (12671) or even higher if the formation is an irregular flat. The immediate impediment is 12671. We will project further targets once we get a weekly close above 12671.

The Sensex can move higher to 12524 or 12619 next week. The resistance in the zone between 12580 and 12620 will be an important hurdle for the short term. The target beyond 12620 is 12753. The support this week would be at 12170 and then at 12085. Traders can continue to buy on dips till the Sensex is above 12085.

We have reached an important crossroad. The tenuous nature of the rally over the last two months makes us believe that the market is currently overstretched. It would be best to stay vigilant till the next move of the market becomes apparent.

Nifty (3569.3)

Nifty, too, was turbulent in the early part of last week though it closed with a minor loss of 0.5 per cent. The Nifty can attempt to rally to 3611 and then 3637 in the early part of next week. The resistance zone between 3630 and 3650 we mentioned last week will continue to hold this week as well. A breakout past this zone is required to take Nifty to 3678.

The supports for the week are at 3498 and then 3434. Traders can continue to buy on dips till Nifty is above 3498; do not initiate fresh longs if Nifty slips below this level.

Global Cues

Crude prices continued to behave themselves last week, giving markets across the globe a reason to feel cheerful. Nymex crude futures of November delivery closed at $59.8 for the week. DJIA is firmly entrenched above the 11700 mark, closing the week at 11850.2. Many of the other global markets such as Hong Kong, Jakarta, Kuala Lumpur are also above or nearing their May 2006 highs.

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