The Hindu Business Line : Index Outlook

The buoyancy induced by successful roll-over of the bulky June series in the derivatives segment made the Sensex float higher on Friday towards the elusive peak of 14723. It has got to scale this peak next week before the earnings season begins to weigh it down again.

The July series has begun on a heavy note too, with an open interest already at Rs 60,000 crore. But the increase in the Nifty put options and the Nifty put-call ratio at 1.6 denotes that short positions could be predominating in the open interest and that is welcome.

The rally is now getting broad-based with the action percolating down to the second and third-rung stocks. The BSE Small-Cap Index is racing to catch up with the BSE Midcap Index. It is poised just 5 points away from a record high.

Though stock specific action continues, the index is still in a trading range between 13820 and 14755. The Sensex moved closer to the upper boundary on Friday. But a close above this level is needed to spur the Sensex towards the next medium term target of 15075. A touch of nerves at a new high can drag the index towards the lower limit of the trading range.

A glance at the long-term counts is warranted as we near a new peak again. The Sensex is in the fifth leg of the up-move that commenced in 2003. There are two counts that we are encountering now. The Sensex could have completed the fifth leg at 14723 and could now be charting a terminal corrective. The second count is that the fifth wave could sub-divide further and carry the Sensex way beyond 15000. The next couple of weeks are expected to resolve this quandary and show us the way ahead for the rest of 2007.

The Sensex can move higher to 14772 or 14814 in the week ahead. Be geared to face turbulence around the previous high of 14723. A close beyond this level will take the Sensex towards 15049. The support that short-term investors should watch is at 14246. 13820 remains the threshold for investors.

Nifty (4318.3)

Nifty remained range bound last week. It can move higher to 4354 and 4366 early next week. Since the index continues to be in the medium term range between 4050 and 4400, a reversal from the zone between 4350 and 4400 can drag Nifty down towards 4050 again. However, a close beyond 4366 will signal an impending rally to 4434.

The important support that traders need to watch is at 4200. Fresh longs should be avoided below this support.

Global Cues

Trepidation concerning sub-prime mortgages in the US and hawkish statement that emanated from the Federal Open Market Committee meeting kept all the global markets subdued during the week. The DJIA is resting above the support at 13300, having completed a perfect flat pattern. A close below this support is required to indicate the end of the intermediate term move from the March trough. The Nasdaq Composite Index is relatively stronger though it has been moving sideways since early May.

Crude settled at $70.68 on Friday on a US government report showing a fall in gasoline and crude stocks. The up-trend in crude will not be under threat unless it falls below $67 again. — Lokeshwarri S. K.

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