The Hindu Business Line : Index Outlook

Indian markets put up a resilient show last week despite the pressures of rolling over a fairly heavy November series. Both the Sensex and Nifty have recorded a negative close in November. The chart pattern, however, suggests that this is more of a temporary pause than the onset of a sustained down trend. And a pause is something that all of us have been hankering for, over the past few weeks.

The lacklustre performance of the large cap stocks can be explained by the net FII outflows to the tune of $1.5 billion last month. However, mutual funds have been net buyers in this period. The November series has witnessed a healthy rollover, considering the stratospheric levels at which the Sensex is currently positioned. Nifty put call ratio climbing to 1.3 implies that short positions outnumber longs in the positions that were rolled over. This is a welcome sign of prudence.

Sensex moved sideways last week after the initial jump on Monday. The index did well to hold above 18182, thus averting a fall to the 17500 zone.

The near-term outlook is turning positive and the index could move higher towards 20000 again in the short-term. But the weakness in the weekly momentum indicators imply that caution should be exercised until the index moves past the previous high of 20238. A reversal from the 20000 zone can cause the consolidation between 18000 and 20000 to prolong for a few more weeks.

As per e-wave counts, the index is charting the fourth part of the move from 12316 trough. The minimum requirement for the completion of this wave was completed when the Sensex fell to 18182. If the fifth part of the move from 12316 has commenced at 18182, it can make the Sensex rise to 20051 or 21208. However, the fourth wave could be a triangle or a double or triple three in which case, the Sensex will move between 18000 and 20000 for a couple of weeks more before an upward break-out.

The upper targets for the week ahead are 19612, 20062 or 20970. The near-term outlook for the Sensex will stay positive as long as it stays above 18600. The support below 18600 would be available at 18182. We retain the medium-term range for the Sensex between 17000 and 22000.

Nifty (5762.7)

Friday’s move on the Nifty signals the beginning of a short-term up trend in the index that can take it higher to 5828, 5973 or 6206. Short-term traders can go long in the index with a stop at 5500. The supports for the week ahead will be at 5538 and then 5394.

The Nifty is expected to move up to 6262 or 6495 in the medium term once the impulse wave resumes. This view will be altered only if the index falls below 5394.

Global Cues

Global equity markets are once more fixating on the prospective rate-cut by the Federal Reserve, trying to guess what is on the minds of the various officials and gyrating accordingly. Most of the global markets recovered in the second half of the week after the 331-points rally in the DJIA on Wednesday. This index will now have to move past 13650 to signal that it is on the path leading to a new high. The Asian markets too snapped back last week, with the sole exception of the Shanghai Composite Index. — Lokeshwarri S. K.

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