The Hindu Business Line : Index Outlook

If one word can sum up the market mood last week, it is resignation. After the deep cut received in the previous weeks, market participants seem resigned to the fact that this correction will not end in a hurry. The profit booking that met each rally and the drop in volumes validate this fact.

Though investors are ready to play the-wait-and-watch game, the overall put-call ratio of 0.8 on NSE reflects the fact that bulls continue to outnumber the bears. The high open interest at Rs 55,000 crore is not very consoling either. Revival of interest in second and third rung stocks is another danger signal. Both BSE Midcap Index and BSE Smallcap Index closed with minor gains last week.

The wave counts are getting simpler now. That makes us fear that this could be the onset of an impulse move. The bounce in Sensex could not get past 13145 last week. That is 33 per cent retracement of the previous fall. The movement of Sensex can take either of these two courses over the next week.

Sensex can continue to oscillate in the band between 12300 and 13250 for a few sessions. That would be construed as the second wave of the downward move from 14723. It would be the halt before the next wave down takes off.

Fall below 12300 would mean that the third wave from the 14723 peak is in motion. A ferocious third wave can take Sensex to 11675 or 10766.

Sensex needs to close past 13250 to mitigate the weak outlook for the short term. The medium term outlook will turn positive only if the index closes above 13800.

For the week ahead, Sensex can rally to 12811 or 13117. But wait for a close past 13250 before initiating fresh long positions. Traders can continue to short on rallies with a stop at 13250. Investors with a long-term time frame can buy selectively in dips.

Nifty (3608.5)

Nifty too closed near the lower boundary of its short term trading range last week. Short-term rallies in Nifty will face resistance at 3722 and 3815. Failure to rally past the first target would indicate that there is a sharp fall in the offing this week. The short-term trend deciding level in Nifty is 3818. Those contemplating going long can do so once it closes above this level. It can then head towards the medium-term target of 3981.

However, we do not expect Nifty to rally above 3818 in the short term. It can weaken considerably once it falls below 3574. The subsequent medium term targets for Nifty are 3368 and then 3105. The safest strategy for the week would be selling on rallies with a stop at 3825.

Global Cues

We had written in last week's column that further gains needs to be recorded by global indices before the recovery can be taken seriously. Most of the indices reversed downwards last week and are threatening to launch in to deeper correction. The indices that are holding out include Shanghai index, Kospi and Straits Times Index. The Nasdaq Composite Index could not retrace even 38.2 per cent of the recent fall, which is a sign of weakness.

Copper is quietly heading northward and has reached the $300 mark on comex. A rally beyond this level will take the metal to the next resistance at $320. Crude had a disappointing week. The next support for nymex light crude for April delivery exists at $55. A bounce from here will keep the medium term outlook positive.

Lokeshwarri S. K.

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