The Hindu Business Line : Index Outlook

As the Sensex readies to race past yet another milestone, an interesting disconnect is being seen in the movement of the global equity markets. Markets in Europe and the US have launched in to an intermediate-term correction. But markets in Latin American countries and most Asian countries are continuing to surge upwards. That is a clear indication of the direction in which global liquidity flows are channelled.

With fresh buyers rushing in to buy at a dip of every 400-500 points, corrections in our markets are becoming extremely shallow and, in many cases, are morphing into running corrections. The background indicators are giving mixed signals. Volumes are robust and the breadth is healthy. But some froth is beginning to form in the derivatives segment again. FIIs and mutual fund inflows, too, suggest that they are taking some money off the table.

The rally last week was broadbased. All the sectoral indices saw gains except for the oil and gas and metal index. The FMCG and auto indices are beginning to show signs of a reversal. The BSE Midcap Index is building on the rally that started the previous week and is heading higher towards 5961.

The momentum indicators in the daily chart are moving sideways in an ambivalent fashion. The negative divergence in the 10-week ROC indicates a mild slowdown in the medium-term trend. As far as the wave counts are concerned, the move from 9875 is showing increased degrees of complexity every week. What promised to be a zigzag followed by a triangle is now turning out to be a double zigzag. As with all complex correctives, the exact pattern will be apparent only after the completion of the wave.

For the week ahead, the Sensex is expected to move upwards to 13941 and then 14167. A confluence of targets in the zone between 14100 and 14200 makes it an important resistance. A breakout from this zone will make the index head towards 14531. Our positive outlook will continue as long as the Sensex stays above 13400.

Nifty (3997.6)

Though there were no gigs or banners or pumping of fists, there were certainly smiles on the face of all Nifty watchers, as the historic high of 4000 was attained. The trend along all the time frames is up in Nifty.

The short-term targets for the next week are 4032 and then 4102. Some selling pressure might be witnessed around 4100. If this level is overcome, we can see the Nifty rising to 4214.

The supports next week will be available at 3906 and then 3863. Traders can buy on dips with a stop at 3890.

Global Cues

It was a turbulent week on Wall Street. Worries about slowing economic growth and weak dollar took their toll on stock prices. The DJIA ended the week down 0.7 per cent and the NASDAQ lost 1.9 per cent.

Nymex crude futures for January delivery closed at $63.4. We have a reversal from $55 as we had anticipated and the price is close to the $64, which was our primary target. The next level to watch out for is $70. Once that is crossed, crude will be on its way to hitting a new high. Base metals such as aluminium and copper are trying to find their feet at lower levels. Copper needs to rally past $331 to take it away from the brink of a deep chasm.

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