The Hindu Business Line : Index Outlook

Tata Steel's acquisition of Corus was an occasion that warranted a hearty cheer by the stock markets manifested through sky-rocketing stock prices. But they, for once, decided to take a pragmatic approach and pummelled the Tata Steel stock instead. The RBI's mid-term review of credit policy with the accompanying hawkish statements got buried under the pile of quarterly earnings reports and Sensex got away with a 0.8 per cent gain for the week.

The action was mainly concentrated in the front-line stocks last week. There was scarcely any movement in the BSE Midcap and Smallcap Index. The correction of the up-move from the December lows is turning out to be a shallow one in these indices. This denotes strength and the indices can move higher in the short term. Among the sectoral indices, capital goods index and consumer durables index are displaying strength.

The derivative segment is beginning to heat up. But, Nifty put-call ratio at 1.8 is comforting as it denotes the predominance of short positions in Nifty. A spike in the index can spur short-covering that will fuel the next leg of the up-move. The need for caution stems from the fact that stock futures comprise 52 per cent of the total open interest. This is where the retail interest lies and the majority of positions in this segment are long.

Sensex continued to meander sideways last week, but a minor breakout has happened on Friday. If this breakout sustains for a week, we will need to revisit our long-term counts. The ceiling for this year might have to be raised.

For the medium term, we have been working around two counts as discussed in last week's column. The movement last week is making us lean more towards the second count, i.e. the correction that began from December 8, 2006, ended at the low of 13303. The intermediate term up-trend that is on since the low of 9875 has resumed from this low. The intermediate term targets as per this count are 14283 and then 14889.

The short-term indicators are turning positive again. A firm close above 14400 will reinforce this view. Sensex can then head towards 14560 or 14621. Supports this week will be available at 14217 and then 14066. Traders can buy on dips as long as Sensex sustains above 14200. Investors should continue to adopt a long-term approach to their purchases.

Nifty (4183.5)

Nifty took one small step towards the resistance at 4200 last week. This still remains an important level to watch out for. A firm close above 4200 will make the medium term outlook positive for the Nifty. It will then have the medium term targets of 4315 and then 4480. That is possible as the pre-budget buying frenzy unfolds.

The supports for this week would be available at 4118 and then 4068. Buying in dips is recommended with a stop at 4110. A fall below 4068 is needed to turn the medium term outlook negative.

Global Cues

We are getting back to a fairy-tale situation where rising crude prices, rising equity markets, rising interest rates and a healthy industrial sector live together happily ever after.

Markets across the globe rallied on Thursday and Friday after the Federal Reserve's policy meet failed to throw up any surprises. The lone under-performer last week was the Shanghai Composite Index that lost 7 per cent. DJIA is at the upper end of the short-term channel. A breakout from these levels will signal the resumption of the impulse wave from the July 2006 lows.

(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)

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