The Hindu Business Line : Index Outlook

The Sensex is running a marathon. It has been an uninterrupted run from August, gaining 39 per cent en route. The dip in the beginning of the last week was straddled easily and the Sensex went on to close the week with a gain of 2 per cent.

Market breadth improved last week. The volumes, especially in the derivatives segment saw a surge. The momentum indicators in the daily charts are moving sideways though the weekly momentum continues to be good. The inference is that there may be some choppiness in the short term, but the Sensex is headed higher for the medium-term.

We have been sticking to the long-term wave count that the move from 8800 is the B wave of the correction from the high of 12671. We have maintained that B waves can go on to 1.382 (14149) or even 1.618 (15063) of wave A. However, a perusal of other global indices puts forward the alternative count that the move from 9875 could be the fifth from the 2003 low of 2934. The targets of this fifth wave fall way above 15000-level. We will re-visit this count if the Sensex rises past 15063.

That is the long-term. For the medium-term, the zone between 13950 and 14200 could turn out to be a difficult obstacle to cross over. Some profit booking can be done by short-term investors in this zone. An intermediate term correction is overdue and it can materialise at any time.

The Sensex moved between 13200 and 13750 last week. These two boundaries can continue to rein in the Sensex next week. A breakout past 13750 will make the Sensex head towards 13950 and then 14030. The support that needs to be closely watched this week is at 13220. If this level is breached, there can be a fall to 12810, where the 50-day moving average is positioned. Investors need to worry only if the Sensex closes below 12800.

There is a sense of déjà vu in the markets. We hear cautionary voices from overseas, gung-ho voices from domestic fund managers and retail investors are in a dilemma about whom to believe. The best course for investors would be to stop looking at the index and invest selectively in stocks with the long-term in mind.

Nifty (3950.8)

It was one of those weeks when the Nifty hit both our lower as well as the upper target. It reversed from the low of 3794 to rise past our medium term target of 3926. The high for the week was 3976.8.

The upper target for the week would be 4023 and then 4077. Some upheavals can be expected as the Nifty nears the psychological level of 4000. Expiry of the November contracts can also cause turbulence in the Nifty next week. Presence of shorts will help to keep the Nifty afloat. Traders can buy in dips with a stop at 3880. Fall below 3880 will take the index towards 3835.

Sectoral Indices

What was laudable about last week's trading was the return of interest in the mid-cap and small-cap stocks. Both these indices recovered smartly from important supports. The BSE Midcap Index recorded a weekly gain of 2.78 per cent. A bullish engulfing pattern is apparent in the weekly chart of BSE midcap index. A breakout past 5700 will take this index towards 6023.

Among the sectoral indices, the IT index is the strongest at this juncture. The BSE Bankex is consolidating at higher levels. Metals seem poised to make a come back as the metal index is reversing from its 200-day moving average. FMCG, Autos and Oil and Gas are in an indecisive phase and are best avoided.

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