The Hindu Business Line : Index Outlook

Our cricketing `heroes' should learn a lesson or two in fighting with the back to the wall, from our stock markets. The markets were poised at the brink of a deep chasm at the end of last week. But they have managed to claw their way to reasonable safety now, spurred by bargain hunting in large-cap stocks. FII activity in the derivative segment indicates that the rally last week can be partly attributed to short covering.

The mid-cap and small-cap stocks were unable to emulate the dazzling performance of their large-cap peers, recording modest gains for the week. That is, however, not a cause for concern as the mid-cap and small-cap participation increases only towards the fag end of an up trend.

Sensex moved past the 13250-level last Thursday. That has averted the risk of a sharp plunge below 12000 in the near future. But, as indicated last week, a move past 13800 is required to make the medium-term outlook positive. The oscillators in the weekly chart continue to signal a sell. The 14-day RSI is at a reading of 51. The inference from the oscillator readings is that the index needs to gain some more ground before the bulls regain control.

As per e-wave counts, we had expected the second wave from the top of 14723 to chart a flat or a triangle before the third wave takes off. Move to the intra-week high of 13386 stays within the bounds of this count. If the second wave develops in to a zigzag, Sensex can move to the next Fibonacci levels of 13548 or 13803. A move past 13803 will mean a re-casting of counts. It will mean that the move from the 8800 is continuing and it can take the index to a new high.

To put it simply, having moved past the resistance at 13250, the momentum can take Sensex further to 13548 or 13803. But until Sensex moves past 13800 convincingly, the danger of another steep drop remains.

The outlook for next week is neutral. Sharp moves are possible in both directions. Sensex can move higher to 13449 or 13606. Supports will be available in the band between 13065 and 13000. Breach of this support will drag Sensex towards 12725.

Nifty (3861)

Nifty too put up a spectacular show last week, gaining 7 per cent. The move past 3818 has made the short-term outlook positive. The zone between 3950 and 3980 is a very important resistance from the medium-term stand point. A rally past this zone will indicate that the long term up trend has resumed. The index can move up to 3927 or 3976 next week if the momentum continues. Support for the week would be at 3803, 3776 and then 3699. It would be best to abstain from trading next week till clarity emerges on the future direction of the market.

Global Cues

The FOMC meeting provided the trigger to kick-start a rally in equity markets across the globe that has wiped out more than half of the losses recorded in the recent correction.

Nymex light crude staged a bounce from the $56 due to the unrest in Nigeria and West Asia. The medium term up trend that commenced on January 18 seems to have resumed and this move has the targets of $63.8 and then $68.6. A close above the $64 resistance, where the 200-day moving average is positioned will be a major victory for the crude oil bulls. Comex gold futures held steady for the week. But the tentative nature of the rally suggests that the resistance at $670 could prove hard to breach.

Lokeshwarri S. K.

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