The Hindu Business Line : Index Outlook

Call it a case of nerves. After having waited for weeks and having built large leveraged positions in anticipation of a market-friendly Budget, our markets are suddenly having second thoughts. The mild selling that began in the early part of the week turned in to a cascade towards Friday and made Sensex close the week lower by 5 per cent.

Though the February series saw a smooth roll-over, leveraged positions in the derivative and cash segment remain the most important factor that can derail a fledgling recovery in the markets. Nifty put call ratio at 1.43 indicates that short positions have not reached a level where they can cushion a fall.

Among sectoral indices, IT Index, Capital Goods Index, Metal Index and Oil and Gas Index withstood the onslaught of the correction better than the other sectors. Though both the BSE Midcap and the Smallcap index lost 5 per cent last week, the Smallcap index looks more vulnerable and could see further down side in the short term.

We had indicated in this column last week that Sensex could be completing an intermediate term up move. The action last week corroborates this view. But before the panic buttons are pressed, here is the good news, the supports for Sensex are just a stone's throw away. The minimum target requirement for this correction is 13268. Since we have a medium term trough at 13303, it is highly possible that the current weakness gets stemmed in the zone between 13300 and 13250. The support levels below the 13250 area are discussed under budget scenarios below.

Though Friday's session closed on a bleak note, a short-term bounce is possible as the momentum oscillators in the daily chart have reached the over-sold zone. One flat pattern has been completed at Friday's low of 13568. Sensex can make an attempt to rally to 14009 or 14282. But the short-term outlook stays negative till Sensex closes above the second target.

The best recourse for traders would be to avoid trading next week and wait for the dust to settle on the Budget. The ringside view is much better than being down there, in the middle.

Nifty (3938.9)

Nifty failed to move past our trend deciding level of 4180 last Monday and collapsed to record a loss of 207 points. As mentioned above, there can be a short-term bounce back in the early part of next week. Nifty can rise higher to 4043 or 4120. If Nifty stutters at the first target, it would mean that some more pain is in the offing.

If Friday's weakness extends in the early part of next week, the index can find support in the zone around 3840. This is a strong support for the medium term and traders can watch out for buying opportunity if the index bounces from here. If the Nifty slides past this support, it can then head towards 3778.

Global Cues

The weakness perceived in the Indian markets last week was definitely not influenced by its global counterparts. Most of the global equity markets were stable last week. Asian markets such as Japan, Korea and China recorded strong gains. Nasdaq hit a six-year high. Commodities were strong with crude, base metals, precious metals as well as agri-commodities recording gains.

Lokeshwarri S. K.

More Stories on : Stock Markets | Technical Analysis | Outlook

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

Stories in this Section
Index Outlook

Technical analysis of budget scenarios