The Hindu Business Line : Index Outlook

The mild 100-point gain in Sensex fails to reflect the whirl of activity that was witnessed in the Indian markets last week. Stock prices were buffeted by the deluge of quarterly numbers and the expiry of the January contracts in the derivatives segment. Next week promises to move along similar lines. It is another short week, where the RBI's mid-term review of annual policy is expected to take centre stage.

FII were net buyers in the cash segment. But the mutual funds went on a selling spree, recording net sales of Rs 800 crore in the first three days of last week. The net sales by mutual funds in January 2007 now stands at Rs 1,100 crore. Volumes on NSE touched levels not seen since April 2006.

Sensex is in a medium term up trend since the low of 12800. There are two ways in which this move can be interpreted. It can be part of the correction that started from the high of 14047 or the impulse wave upward could have resumed from 13303.

A firm rally above 14400 will mean that the second assumption is true. Sensex would then head towards 14609 and then 14943. If it fails to surpass 14400 in the early part of next week, it would bring the first assumption in to play. As per this count, Sensex would spend some more time consolidating in the band between 13500 and 14400. The movement of Sensex next week should give us pointers regarding the intermediate term.

The lack of decisive trend was not confined to the front-line stocks alone. The BSE Midcap Index and Small cap Index barely budged last week. Among the other sectoral indices, BSE metal index has moved past its intermediate resistance and looks set to extend its gains further. Capital goods index is the other index that displays strength.

The short-term outlook for Sensex is positive. Sensex can head higher towards 14403 or 14550 next week. The supports to watch out for are 13918 and 13682. The positive outlook for next week will be negated only if Sensex moves below 13918.

Nifty (4147.7)

Nifty has been stuck in an extremely narrow band over the past two weeks. The daily oscillators are positive, though the weekly oscillator reading is not too strong. Nifty can move higher to 4168 or 4212 in the short term.

Traders can buy for the short term with a stop at 4020. A fall below 4020 will give Nifty the next target of 3949. Medium-term investors can stay sanguine as long as Nifty sustains above 3920 as both the 50-day moving average as well as the medium-term trend line are positioned there.

Global Cues

The week was marked by a reversal in prices of major commodities in global markets. The most notable was crude, which touched a high of $55.9 due to dipping temperatures in US. However, a little more work needs to be done to take the crude price above $59 and to make the medium term outlook neutral. Recovery in copper has been insipid. Gold is edging towards the resistance at $660.

The DJIA has turned in its worst weekly performance in 2007. This index has been moving in a range between 12350 and 12650 since the end of December 2006. Oscillators in the weekly chart are displaying weakness. But a fall below 12400 is required to make the medium-term outlook negative.

(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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