The Hindu Business Line : Index Outlook

The baton was passed to the `old economy' boys — SBI, Reliance, ONGC and HLL — last week. It was their turn to sprint and take the Sensex past the 13000 threshold. The mildly intimidating tone of the RBI Governor in his mid-term review of the Annual Policy for 2006-07 failed to dampen market sentiments and the Sensex closed the week higher by 1.7 per cent.

It is, however, obvious that not all stocks were invited to the 13k celebration party. Small caps were sulking and closed the week with a loss of 0.7 per cent. That accounted for the rather lacklustre market breadth. The small-cap index is moving sideways just below the 61.8-per cent retracement level of its post-May fall. It is possible that these stocks have completed their intermediate term up move from June and are readying for a fall.

The momentum oscillators in the daily charts have generated tentative buy signals. The chart pattern since the low of 12301 in the Sensex gives us medium-term targets of 13305 and then 13733.

The intra-day charts of the Sensex show yet another running correction that formed towards the end of last week. This pattern can be projected to give the short-term target of 13293 and then 13447. The short-term trend will stay positive till the Sensex stays above 12950. The medium-term trend will be threatened only if the Sensex falls below 12612.

It is hard to build a case for the Sensex to move upward from these levels in the short term. But, it is a cardinal principle of technical analysis that the trend is supreme. And the trend is currently pointing upwards. The only way to trade an uptrend is to buy on dips. Wait for firm trend-reversal signals before initiating short positions.

To encapsulate, the Sensex is headed towards 13300 and then towards 13447 this week. Traders can continue to buy on dips as long as the Sensex is above 12950. Investors can use this opportunity to clean up their portfolios.

Nifty (3805.3)

The Nifty made a new all-time high last week, hitting an intra-week high of 3809.6. Pure trend-following methods indicate that the Nifty is headed higher from these levels. We had written last week that a break past 3795 would take the Nifty towards 3885. That is the medium target for the Nifty now.

The upper targets for the Nifty this week are 3842 and then 3893. Watch out for turbulence as the Nifty nears the 3840-3850 zone. The short-term outlook will stay positive till the Nifty stays above 3746. The medium-term outlook will reverse only when the Nifty falls below 3651.

Global Cues

The DJIA has slipped below 12000- mark to close the week at 11986. The NASDAQ moved sideways closing the week at 2330.8. Equity markets in the US and Europe are threatening to launch in to a medium-term downward move that would correct the rally from August lows. Asian and Latin American markets were stable, indicating continued interest in emerging economies. The elections to the United States House of Representatives to be held on November 7 will hog the attention of all markets this week. Crude came off its lows to close at $59.14 on Nymex. Gold broke past our target of $617 last week to close at $629. If it gets past the short-term resistance at $635, we could see a rally to $677.

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