The Hindu Business Line : Index Outlook

Friday's rally in our markets is a prime example of the irrational thought processes that move stock markets. Changing of the Banking Regulation Act to give the RBI the power to reduce the SLR floor sent bank shares shooting skywards, which in turn propelled Sensex to a new all-time high of 14070.8. But why would the RBI reduce the SLR when it is on a credit tightening spree as is demonstrated by the 50 basis points hike in CRR in December? Such are the foundations on which the stock market castles are built.

The background indicators are giving mixed signals. FII selling that was threatening to turn in to a deluge tapered off towards the end of the week. Volume picked up as the recovery gained momentum. The open interest is nudging Rs 58,000 crore. But, predominance of short positions in Nifty would help in taking this short-term rally forward.

The in-line-with-market-expectations result from Infosys put a lid on IT companies' prices. But the BSE Bankex, BSE Consumer Durables Index and BSE Oil and Gas Index put up a strong show and are currently at a new all-time high. The BSE Healthcare Index too looks strong for the short term. BSE Metal Index and BSE FMCG Index are on the verge of launching in to a fresh move up.

The mid-week low of 13303 could mark the end of the C wave of the flat pattern that we had outlined last week. The fact that the C wave stopped at the first target of 13308 underlines the positive sentiment prevailing in our markets. It is not possible to label the subsequent up move to 14070 yet. It can either be an X wave preceding another three-wave correction or the resumption of the rally from the 9875 lows.

We will stay neutral till the Sensex closes firmly above 14200. Sensex can witness volatility as it approaches the resistance band between 14,100 and 14,200. A breakout beyond 14200 would give Sensex the medium term target of 14563.

Reversal from the resistance zone mentioned above can drag Sensex towards 13777 or 13596. Since the intermediate term outlook for Sensex is positive, short-term investors can utilise dips to buy with a stop at 13280.

Nifty (4052.4)

Nifty diligently followed the script that we had given to it last week. It reversed from our support level between 3855 and 3822 to rally to a new high.

As explained above, we are yet to confirm that the move from 3834 is the resumption of the intermediate term up trend. The short-term resistance for Nifty lies between 4075 and 4108. Traders can play long once this zone is firmly breached. The next medium term target would be 4223. Supports for the week would be available at 3973 and then 3939. Look for buying opportunities around 3950 for short-term trading purpose.

Global Cues

Copper and aluminium stabilised at lower levels last week. But the recovery has not been convincing. Comex copper futures need to rally past $3 before the short-term trend turns neutral. Crude looks worrisome. The next support for crude would be at $47.5 and below that at $41. All the global markets recovered towards the end of last week. The US markets and some of the European and Asian markets such as Belgium, CAC, DAX, DJIA, Italy, Nasdaq, Spain, Sri Lanka, Switzerland etc. are once more hovering around multi-year highs. The other BRIC countries, Brazil, China and Russia suffered losses due to the dominance of commodity shares on their stock markets.

(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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