The Hindu Business Line : Index Outlook

It was certainly not a smooth sailing for the Sensex last week. The markets hit a stormy patch mid-week that caused the Sensex to dive to a low of 12950. But we were back on course, in placid waters and under clear blue skies by the end of the week as the Sensex rallied once more to close with a gain of 1.1 per cent.

The action was concentrated in the mid-cap stocks. The BSE Mid Cap index gained 1.8 per cent. The small caps continued to look weak as the BSE Small Cap index gained a marginal 0.5 per cent.

Among the sectoral indices, the BSE Pharma Index has recorded a breakout. The pharmaceutical stocks can perk up this week.

The BSE Bankex continues to roar ahead proclaiming this to be the hottest sector in the short term.

The background indicators are giving mixed signals. The open interest in the derivatives segment on the NSE is nearing the levels seen in May 2006.

The Nifty put call ratio and the premium in Nifty futures denote an unacceptable level of optimism in the markets. But the lack of action in the small cap stocks and the indifferent breadth indicate that the leaning is more towards quality stocks.

Daily traded volumes too are nowhere near the highs seen in April and May 2006.

There is not much help forthcoming from the oscillators in the daily chart as they are meandering sideways in an uninterested manner.

Signs of strain are evident on the weekly and monthly ROC but there are no conclusive sell signals as yet. In other words, there is a definite slow down in the momentum, but the trend continues to be up along all time frames.

Chart patterns that evolved last week, point towards one more upward thrust that can take the Sensex to 13625. Traders are advised to stay on the right side of the trend, i.e. play long. However the burgeoning open interest calls for moderation as far as leveraged positions are concerned.

For the week ahead, the Sensex can spend some more time consolidating in the 13400 to 13000 range. The short-term outlook will stay positive as long as the index stays above 12950. Breakout above 13400 will propel the Sensex to 13625.

Nifty (3834.7)

Nifty too remained range bound last week, turning down from an intra week high of 3842.4. The support at 3746 was not breached conclusively as it turned upward from an intra week low of 3737.2.

The index is expected to rise to 3854 in the early part of next week.

If a reversal is witnessed here, we can see some sideways moves between 3850 and 3720 for the rest of the week. Buying in dips is advisable as long as the Nifty stays above 3723. Do not initiate fresh longs if the Nifty closes below 3723. It would then head towards 3651.

A strong breakout past 3854 would take the Nifty to 3926 and then 4043.

Global Cues

Global equity markets spent the week consolidating at higher levels. The only factor that can derail the rally in equities seems to be the weakness in base metals. Copper futures lost 6 per cent on Comex on Friday, returning to their June levels. Aluminium too followed suit.

Gold is, however, well on course to hit a high of $655 soon. Nymex crude futures for December delivery closed at $59.5. Crude prices are currently retracing the move since the 2001 lows of $17.1. Long-term support exists at $54.7. If the price bounces off this support, it will re-test its 2006 highs.

Lokeshwarri S. K.

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