The Hindu Business Line : Index Outlook

The rather bored response to Sensex hitting the 14,000 level last week, brings to mind the year 1999 when 5,000 balloons were released from the top of Jeejeebhoy Towers to commemorate the occasion of the Sensex hitting 5,000. Three months later, when the Sensex hit 6,000, there was only a sulky silence.

A consensus is now building up that the markets need to correct before moving up further. Whether the markets will oblige, we will know by next week. The Sensex ended the week on a negative note.

The vulnerability of the markets at this juncture stems from two sources. Firstly, the open interest in the derivatives segment is above Rs 50,000 crore again. Over 60 per cent of this open interest comprises long positions. The Nifty PCR at 1.40 also points towards a sense of misplaced complacency building up in the markets. The second source of concern is the selling resorted to by the FIIs last week.

The BSE Bankex recorded a red candle on the weekly chart, the first in the last three months. The Oil and Gas Index can launch in to a deeper correction, as a 5-wave move is complete from the low made on July 28. A fall to 5762 or 5372 is on the cards. The mid-cap and small cap indices too paused last week. The action next week will determine if this is the onset of a deeper correction. The only sectoral index that holds out promise for next week is the capital goods index.

There is a slow down in momentum in the chart of Sensex. The ROC oscillator in both the daily as well as the weekly chart is signalling a sell.

But these are not conclusive signals. The sequence of higher peaks and troughs has not been broken yet. We need to see the Sensex close below 13600 before a medium term correction can be ascertained.

The short-term support for Sensex exists at the level where it halted on Friday, at 13756. If this support holds on Monday, we can see the index rising to 14039 or 14214.

Our medium-term outlook for the market will turn negative if Sensex closes below 13600. We can then expect a fall to 13374 or 13083.

The lacklustre moves made by the front-line stocks have made a chink in the strong rally witnessed since August. But traders should wait for a fall below 13600 before playing short. Investors should stay on the sidelines this week.

Nifty (3962)

Nifty reversed from a high of 4046.8. The short-term support lies at 3962, where it has closed for the week. We need the Nifty to stay above 3962 in order to see it rallying to 4033 or 4085.

If 3962 is breached, the next support lies at 3911. A close below 3911 will be a cue to Nifty traders that no further longs should be initiated for short-term trading.

The support below 3911 will be available at 3856. Breach of this level will pull Nifty towards its 50-day moving average positioned at 3790.

More Stories on : Stock Markets | Technical Analysis | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Index Outlook