The Hindu Business Line : Index Outlook

The Sensex continued to press forward, recording a weekly gain of 1.1 per cent. It was in illustrious company, as the DJIA, Hangseng, Kospi and KLSE indices also gained between 1 and 2 per cent last week. The Shanghai Composite Index walked away with the laurels, recording a weekly gain of 4.7 per cent.

The point highlighted here is that liquidity has once more started chasing equity in the backdrop of a possible peaking in commodity prices and a benign interest rate scenario making debt instruments less attractive.

On the flip side, this conducive global environment is making our markets over-complacent. The open interest in the derivative segment on NSE is hovering around Rs 52,000 crore. As the November contracts near expiry, we could be in for bouts of volatility, as the dynamics of long and short unwindings play themselves out.

The Sensex seems to be on course to hit a medium-term high of 14149. This medium-term view will be revised only if the Sensex falls below 12612. However, wave patterns suggest that we are nearing the end of a triangle pattern that started in mid-September. Completion of this move can usher in a 10 to 15 per cent correction in the Sensex.

The Sensex has recorded a bearish engulfing candle on Friday, which is negative for the short-term. We need the index to recover from Friday's lows in order to see it rising higher to 13613 or 13755 next week. The next resistance zone for the Sensex lies between 13700 and 13750. A breach of this zone will make the Sensex rise to 13935.

We expect the Sensex to trade in a range between 13700 and 13200 next week. Short-term support would be available at 13373 and then at 13246. Traders can buy on dips as long as the Sensex stays above 13200. Investors need to resist the temptation to chase momentum stocks at this juncture.

Nifty (3852.8)

The Nifty was weighed down by ONGC that made it record a paltry gain of 0.47 per cent last week. This index rose past our first target of 3856 and is now heading towards our next target of 3926. But we would like to see the Friday's low of 3836 hold for the first two days of the week. This would suggest strength in the short term and would propel the Nifty upwards to 3936 and then 3999. A fall below 3836 will see the index falling to 3800. Traders can go long till such time the Nifty stays above 3800. Do not play short till there is a conclusive breach of the 3800 level.

The BSE Midcap Index weakened towards the end of last week to end at 5561.2. A fall below 5420 in this index would be an indication that a medium-term correction is underway. Fresh positions in mid-cap stocks should be avoided if that happens. The BSE Smallcap Index, too, closed weak at 6359.4. We have pointed out earlier that this index has been unable to penetrate the resistance that exists at 61.8 per cent retracement of the fall from May highs. Extra care needs to be deployed while buying in to small-cap stocks, as they get hit the hardest in any fall. The trend reversal level in this index is at 6120.

Other Global Cues

Light Sweet Crude oil for December delivery fell to a 17-month trading low on Friday, finally closing at $55.8. It is poised just above the $54.7 support mentioned in last week's column. Recovery from here will take the prices higher to $64. A fall below this support will give the next support at $44.48. — Lokeshwarri S. K.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

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