The Hindu Business Line : Index Outlook

The influx of the second quarter numbers continued, some mediocre but mostly splendid, causing a wave of optimism in the Indian stock markets. The three-day-long trading week in the markets was, however, interspersed with bouts of volatility mainly due to the expiry of the October contracts in the derivatives segment. The Sensex closed the week with a gain of 1.3 per cent.

The intra-week low in the Sensex was 12612.3. It did not slip below the 12500 levels indicated last week. So the medium-term outlook stays positive. The oscillators in the daily chart are moving sideways. The 10-week ROC has given a sell signal, the first since the buy signal was generated in July. The 14-week RSI is at an overbought reading of 72.6. Since these are lag indicators, we need to see the movement this week before drawing any conclusions.

The intermediate term uptrend that began from the low of 9875 in the Sensex is still in force. We are sticking with the assumption that this is the second leg of the correction that began from the high of 12671 in May 2006. This second leg has surpassed the beginning of the A wave. The next target for this wave computed on an arithmetic scale gives us 14149 (1.382 per cent of A).

But negotiating the second leg of the correction is a very complex task. The reason being that we have to watch out for the third leg that can materialise at any stage and would pull the market down very sharply. The possibilities and counts are always numerous when we are placed in the mid point of a pattern.

To put it simply, the Sensex can head higher from these levels. But there is an equal chance of an intermediate term correction getting triggered from here as the Sensex nears the upper end of its trading range. Investors can stay on the sidelines till the direction of the Sensex becomes more apparent. Traders can ride the trend by playing long with tight stops.

For the week ahead, the Sensex is expected to stay in the range between 13100 and 12500. Profit booking can be expected in the zone between 13050 and 13100. If the 13100 level is breached firmly, the Sensex will rise to 13420. Fall below 12500 will pull the Sensex towards 12150.

Nifty (3739.3)

The Nifty reversed from our second support of 3652 last week and closed with a gain of 1.7 per cent. The Nifty can try to move higher to 3779 or 3795 in the early part of next week. But profit booking can be expected as the Nifty reaches its previous high of 3773. Initiate fresh longs only if the Nifty closes above 3780. A sharp breakout past 3795 will take the index to 3885. Support for the week would be at 3597. Fall below 3597 will take the Nifty to 3508.

Global Cues

Global equity markets eased towards the end of last week. The US markets saw a sharp dip as the GDP growth in the third quarter came in at 1.6 per cent against a forecast of 2.1 per cent. DJIA has recorded a bearish engulfing candle on Friday, which points towards the weakness continuing for a few more days. Nymex crude futures for December delivery closed at $60.7 on Friday.

Aluminum futures recorded a weekly rise of 3.7 per cent on Comex though copper continued to move sideways. Comex gold is struggling with the $601 resistance. Rise above $601 will take it to $ 617.

More Stories on : Stock Markets | Stock Markets | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Early exposure to equity pays

Index Outlook