The Hindu Business Line : Index Outlook

Sensex hit a slippery patch last week. It, however, did a commendable good job of holding steady despite a spiralling rupee, zooming crude prices, hawkish Bernanke-speak and inflation that refuses to come down. The Reserve Bank of India has probably accomplished the task of adding the last straw on the market's back.

A look at the Bankex is warranted in the light of Friday's development. This index is reversing after a mild pull-back to 6900.

This rally has all the hallmarks of the second wave and the index can now head towards 6070 and then 5290. BSE FMCG Index and Metals Index are showing signs of life and could be contrarian picks in a falling market.

A spinning top is apparent in the monthly candlestick chart of Sensex. Spinning tops denote indecision and this rightly reflects the market mood in March. But since this candle follows an evening star formation in February, we cannot infer that the worst is behind us. We had a better indication of an intermediate term bottom in June 2006, when a bullish hammer succeeded a bearish engulfing candle.

As per e-wave counts, we have held on to our view that the recovery from 12316 lows is a pull-back rally or the second wave. A rally past 13800 was held as a requisite for negating this view.

But Sensex can spend some more time oscillating in the band between 12300 and 13500 before the next move of a larger degree starts.

Sensex can dip to 12787 or 12557 next week. The 200-day moving average positioned at 12512 will be an important support. Sharp reversals from this average can be utilised by short-term traders to go long.

The next support would be the recent short-term low formed at 12316. Resistance for the week would be 13386 and then 13540.

Nifty (3821.5)

Nifty has done a little better than Sensex in the current pullback, managing to retrace 50 per cent of the fall from the 4245 peak. The medium-term resistance continues to be between 3950 and 3980. A rally past this zone is required to signal that the long-term up trend has resumed.

For the week ahead, Nifty can dip to 3738 and then 3680. A dip below 3680 can see it heading to the support band between 3626 and 3586, which should cushion any fall in the short term. Trading will remain a difficult proposition as long as Nifty is in the zone between 3600 and 3900.

Global Cues

Global markets could not build on the recovery that began in the middle of March. Most of them moved in a sideways range with a negative bias, keeping investors on tenterhooks.

The only exception is China, where the equities are on fire. Crude managed to rise past the $64 resistance and is now headed towards our next target of $68. A rally past $68 would denote the resumption of the long-term bull phase that began from the 1998 low of $10.

A new high would be on the cards. The rally in copper is gaining strength and promises to evolve in to an intermediate term up trend.

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