The Hindu Business Line : Index Outlook

Indian stock markets began 2007 on a hesitant note. After having expended all the energy in pulling back from the deep chasm that opened up in December, the markets seem to be wondering where to go next. The bedlam in the base metal and crude oil markets, and the looming interest rate hikes by BOJ and the RBI is making the going rather difficult for equities.

Though the gain in Sensex was a mere 0.5 per cent last week, the BSE Smallcap Index gained 4.3 per cent and the BSE Midcap Index gained 4.8 per cent. This would bring cheer to a vast number of retail investors. But, it should also set alarm bells ringing, as a revival of interest in third- and fourth-rung stocks portends an imminent peak.

Sensex paused near its previous all-time high last week. This is a perfect scenario for a flat formation to unfold from the December high of 14035. The next leg downward is expected to take the Sensex to 13308, 12844 or 12379. We have a strong short-term support from the 50-day EMA and the medium-term trend line, both of which are positioned at 13390.

Our outlook for the week ahead is negative. A close above 14060 is required to make the outlook positive again. For the medium-term, we are expecting a sideways move between 14150 and 12500 for a few weeks. This move can unfold as a flat or a double or triple three. Investors can look for buying opportunity in the band between 12500 and 12800.

A firm close above 14060 is required to propel Sensex towards the next medium-term target of 14401. Perhaps, Infosys would wield the magic wand again and provide the trigger to engineer the breakout. Traders should wait for a close above 14060 before initiating fresh long positions. Investors need to stay away from the dubious stocks that are beginning to rear their heads.

Nifty (3983.4)

We continue with the view that Nifty would move in a broad sideways range between 4050 and 3600 for a few weeks before the next impulse wave unfolds. If it fails to rise past 4040 next week, we can see a slide to 3802, 3655 or 3507. Traders can initiate fresh shorts with a stop at 4050.

Short-term support will be available at 3855 (50-day EMA) and 3822 (medium-term trend line). A breakout past 4050 would give Nifty a medium-term target of 4136. Wait for a firm breakout beyond 4050 before going long.

Global Cues

The deep chasm that we had anticipated in this column has opened up for copper. It tumbled 12 per cent last week.

It is now correcting the entire speculative rise from the March 2006 lows. The next support for Comex copper futures would be between $230 and $210.

Mayhem was witnessed in crude oil market, too. Nymex light crude is now at its intermediate-term support of $55. A fall below these levels will see price heading towards $47.

Most of the global markets have begun 2007 on a shaky note. Bovespa was hard hit with a 5-per cent loss for the week. What is more worrying is the engulfing bearish candle on its weekly chart.

European and US stock markets closed the week with minor losses.

Among Asian markets, South Korea and Thailand with a 3.4 per cent and 7.6 per cent fall were among the worst affected. Malaysian and Taiwanese equity markets bucked the trend and closed on a strong note.

(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)

Lokeshwarri S. K.

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