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Mr Ben Bernanke’s largesse sparked a boisterous party in markets across the globe last week. The Sensex used this impetus to clamber atop the 16000 peak and is now eyeing the next summit at 17000 that appears to be well within reach.

FIIs were the prime drivers behind last week’s surge, infusing over $1 billion in a week. The expiry of the September contracts in the derivative segment would influence the trading next week. Open interest nearing the Rs 1 lakh crore levels once again reflects the upbeat sentiment on the street. But high Nifty put-call ratio signals the presence of shorts, which can help to speed up a recovery if the market does correct.

The Sensex broke upwards last week, as expected, but it has moved beyond our outer target of 16307. The impulse move that commenced at the August trough is more powerful than any that we have witnessed over the last one year. This up-move appears to have enough steam to take the Sensex higher to 16846 or even 17208 shortly. The short-term outlook will stay rosy as long as the Sensex stays above 16173.

Last week’s move has made the Sensex move firmly beyond our yearly range. In our previous long-term review on August 19, we had written that “If the present correction stops above 13000, there would still be the possibility of the Sensex moving above 20000 over the next two years. But a few months of sideways move in the range between 13000 and 16000 could precede such a move.”

Since the Sensex formed an intermediate term trough at 13780, we could now be in the third leg of the long-term uptrend from 8800 that has a minimum target of 18148. The caveat: as we are talking about long-term counts here, the Sensex needs to hold above the 15900 mark for at least a month to confirm a long-term break-out. Else we go back to the ‘sideways move between 13000 and 16000’ scenario.

To elucidate, the Sensex has recorded a significant break-out last week that has extremely positive connotations for the long-term. But we would like to see the index hold on to the 16000+ levels for a few more weeks to confirm this outlook. The apt strategy that investors should employ in this situation would be to stop looking at index levels and to focus on sound stocks with long-term growth potential. Traders can buy in corrections as long as the Sensex trades above 16170.

Nifty moved way above out outermost target of 4716 last week. If we extrapolate the move that began from the 4002 trough, the next target would be 5027. The minor targets for the move from 4481 low fall at 4893 and then 5000. So the next medium term target for the Nifty lies between 5000 and 5100.

The supports for the index next week would be available at 4717 and then 4624. Traders can buy in dips till the Nifty trades above 4700. The medium term outlook for the Nifty will stay positive as long as the index remains above 4620.

The Dow Jones Industrial Average spent three sedate sessions after the explosive move on Tuesday. One more spurt to the zone between 14000 and 14100 could materialise in the near term. The way this index behaves after crossing 14000 will determine the direction for the rest of this year. European and Latin American markets (with the exception of Brazil) are underperforming this month. Other Asian markets (excluding Hong Kong) too have not yet reversed the down trend that commenced at the July peak.

Nymex crude reversed just under the near-term target of $84.4 indicated last week. A correction that halts above $78 will mean that the move from $50 will have legs that will take the commodity to new highs again. Gold outshone the rally in other metals last week. It is headed towards the near-term target at $767.

— Lokeshwarri S. K.

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