The Hindu Business Line : Index Outlook

Onset of the Indian summer has lulled the markets in to a languorous state. Sensex meandered sideways, going nowhere in particular, for the second successive week. The two holidays were partly responsible for the disinterested trading activity. It was left to the corporate earnings announcements to provide islands of activity.

Though, the front-line stocks were found floundering, the mid-cap and small-cap stocks were relatively stronger last week. The BSE Midcap Index closed with a gain of over 2 per cent while the BSE Smallcap Index gained 1 per cent. The open interest on NSE is nearing Rs 50,000 crore again. Nifty put-call ratio indicates that increase in short positions could be responsible for the open interest build-up.

The three-day week has left the technical outlook unaltered. The short-term trend is down since the peak formed at 14384. The daily oscillators confirm this view. There can be a drift lower to 13762 or 13499.

But the medium-term trend is up since the 12425 low. This up trend will be under threat only if Sensex falls below 13173. The 10-week ROC moving in to the positive zone is good for the longevity of this trend. A reversal above 13635 would mean that the index has inclination to move near its all-time high again.

If we expand the picture further and look at the intermediate term trend — that would be classified as sideways. The move from 12425 can be part of a sideways move that began from the 14723 peak. The next move down can take the index towards 12800 again

Formulating a strategy is easiest when the trends along all the time frames are similar. With varying trends, investing becomes a tightrope walk. Sensex seems set to move higher in the medium term but investors should be geared to face an intermediate-term reversal at every turn.

The index can remain in the range between 13600 and 14300 this week. Buying would emerge in the zone around 13600. A move below this level can take Sensex to 13499. The upper targets for the week would be 14218 and then 14408. A firm breakout above 14408 can propel Sensex to 14714.

Nifty (4117.3)

The technical view on Nifty too remains the same. It can move lower to 4064 and then 3992 in the short term. But buying is likely to emerge around the 4000 level.

Move below this support can take the Nifty to 3887 or 3846. The medium term up trend that began from the low of 3617 will be under threat only if it closes below 3846.

If the short-term low of 3933 holds this week, we can see Nifty moving higher to 4204, 4245 and then 4313.

Global Cues

Global equity markets had a strong week. Markets in Europe, America and Latin America continued to make new multi-year highs. Some Asian markets such as Indonesia, Singapore, China, Korea and Malaysia were part of the bullish camp. The surge is led by the Dow Jones Industrial Average, which is on a record-breaking run.

Comex gold eased off last week. But the 50-day moving average at $666 has supported the commodity.

The short-term outlook will turn negative only if a fall below this price is encountered.

Crude eased towards the end of the week on reports of adequate inventory to meet the summer demand. The price is returning to the support at $61.

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