The Hindu Business Line : Index Outlook

The Sensex has finally done it, recording a new all-time high, making the May high of 12671 just another number in history. It has been a gritty climb from the morass of the May crash, gaining an incredible 45 per cent in 90 sessions. But, the market has been looking over its shoulder at every step in this rally, listening for the approaching tread of the bear.

This caution has only aided in moving the market higher, as short sellers got trapped with every spike in the indices. The open interest in the derivatives market has crossed Rs 40,000 crore again. However, the market cannot be called over leveraged at this juncture, as retail participation in the derivative segment is nowhere near the euphoric levels seen in April and May.

Now that the Sensex is past 12671, we need to revisit the long-term counts once more. We stay with our count that the rally from the low of 8800 is the B wave of a long-term correction that began from the high of 12671. Low volumes, lack of conviction and the laboured nature of this rise support our assumption. At present, the B wave has achieved a 1:1 relationship with the A wave. The next target for this B wave is 13071.

If we look at the minor counts of the move from 8800, the targets of the third leg fall at 12831 and then 13359. That narrows down our medium-term target for the Sensex between 13000 and 13500. For the long-term, we expect the Sensex to consolidate in a broad range for a few years before the next leg of the bull phase sets it. As the Sensex is already nearing 13000, the lower boundary of this long-term range, too, is lifted higher to about 10000.

The momentum is back in the market for the short term. The Sensex is expected to rally to 12875 and then 12947 next week. A move past 12947 will take the Sensex to 13112. The supports for the week are at 12481 and then 12255. A fall below 12255 is required to signal a short-term trend reversal.

Investors should be quality conscious and invest with a long-term perspective only. Traders can continue to buy on dips but with tight stops.

Nifty (3676)

The Nifty reached our outermost target of 3678 last week to hit an intra-week high of 3682. The upper targets this week are 3723 and then 3746. The weekly resistance would be at 3750. This level needs to be crossed to take the Nifty to 3808. The support for this week would be at 3596 and then at 3544.

Our medium-term target for the Nifty has now been revised to 3822. The medium-term outlook will stay positive until the Nifty stays above 3540. Traders can continue to buy on dips with tight stops.

Global Cues

It is all bright and sunny in the equity markets across the globe. The Sensex was not the only index to cross the May high last week. Almost all the European indices such as the FTSE, CAC, DAX and Italy's MIBTEL, too, overcame their May highs last week along with some of the Asian indices such as the KLSE and Jakarta index. The DJIA and Hangseng are now firmly entrenched above their May highs.

The only factor that can spoil this global partying in equities is oil, which is steadying itself around the $59 mark. October gold futures on Comex rallied from their recent low of $560 to a high of $585 last week, spurred by increased consumption from the jewellery trade in India.

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