The Hindu Business Line : Index Outlook

October has redeemed its tainted image by helping the Sensex to a whopping 15 per cent gain in the month. It was an action-packed period with hardly a dull moment as the benchmark raced past successive milestones to attain the Olympian heights of 20000. The SEBI directive, quarterly earning numbers and the pronouncements by the various Central Bank chiefs only helped to liven up the proceedings further.

Of course, those grappling with the intra-day whipsaws would be glad to bid adieu to this intensely volatile period. But the elated mood in the markets and the large participation of retail investors in futures trading is something that we can do without. Despite the slow down in the FII inflows, the domestic players are keeping the momentum going in our markets.

After the brave rush to 20K on Monday, the Sensex spent the rest of the week in a quiet sideways movement. This move would be construed as a short-term consolidation. That makes the trend along all the time-frames (short, medium and long term), up. We retain our view that the index is close to a fairly significant long-term peak. But this peak is most likely to occur in the first quarter of 2008. The index can easily gain another 10 per cent in the intervening period.

Volatility will continue to be intense in the medium term and the medium term range for the Sensex is envisaged between 17000 and 22000. Of the two short-term counts outlined in our previous column, the Sensex moved as per the second count. The fifth leg from the 12316 gives the medium term target of 21079. A move beyond this level would mean that the third wave from 12316 is extending.

For the week ahead, the Sensex is expected to move sideways with an upward bias as market participants busy themselves with Diwali festivities. The index could move higher to 20427 or 20943 next week. The supports for the week would be at 19066 and then 18342. The short-term outlook will stay positive as long as the Sensex stays above the first support.

Nifty (5932.4)

Nifty’s ascent to 6000 last week was devoid of the fanfare with which every 1000-point gain in the Sensex is greeted. The sideways move witnessed in the index in the later half of the week suggests that it can move higher to 6060 or 6211 in the short-term. The supports in the week ahead would be at 5664, 5551 and then 5438. Traders can keep buying in corrections as long as the Nifty stays above 5664.

Global Cues

The FOMC meeting turned out to be a non-event. But volatility returned to the global equity markets on Thursday due to resurfacing credit market concerns. The reversal in the Dow Jones Industrial Average implies that the down trend that began on October 11 can extend for a few more weeks. Other markets in Europe and Asia, too, reversed downwards towards the end of last week, in tandem with the US equity markets.

Gold and crude are competing with each other to out-dazzle the financial community. Comex gold rose to a high of $799.3 last week. The commodity is in a strong impulse move with extremely shallow corrections. Crude recorded an intra week high at $96.2. The commodity is gathering steam to race past the psychological $100 mark. — Lokeshwarri S. K.

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