The Hindu Business Line : Index Outlook

Sensex had to toil hard to reach a new all-time high of 20498.11 last week. The rally in the Indian markets has become so broad-based that the pivotals have been elbowed aside by the little ones. But it is difficult to see the benchmark making any further headway unless Reliance Industries, ONGC, Bharti Airtel, ICICI Bank et al shake themselves out of the current stupor and make some serious moves upward.

Of course no one is really complaining as long as the small caps continue to dazzle; the BSE small cap index closed with a whopping 7 per cent gain last week. The BSE Midcap Index was not too far behind, recording a 5 per cent gain. Trading activity is reaching a crescendo with record pile up in the futures and options segment. Stock futures comprise 68 per cent of the open interest indicating the dominance of speculative positions.

Despite moving past the previous high, the Sensex could not get past the medium term trend-deciding level of 20500 indicated last week. The tentative nature of the move from the 18182 trough denotes that the corrective phase that began from the peak formed on October 30 is still continuing. After a flat ABC formation, the index appears to have charted an X wave that will be followed by another double or triple three. In simple terms, the Sensex could move between 18000 and 21000 for a few weeks before the next upward break-out.

However, the short-term outlook is not too bright. The index is losing momentum on the daily as well as the weekly chart. The index could slide lower towards 19613 or 19067 in the near term. Short-term traders can watch out for a sharp rebound from the support zone between 19000 and 19200, where the 50-day moving average line is positioned. Breach of this line will mean that the index is heading for the medium term support at 18182. Investors have no cause to worry as long as the index stays above this level.

The holiday mood is likely to set in next week as the Sensex drifts sideways with a negative bias. The index will encounter resistance at 20482 and then 20820 while supports will be available around 19000.

Traders can continue to buy at corrections as long as the index stays above this level.

Investors need to be quality-conscious while buying stocks in this market.

Nifty (6047.7)

Nifty too recorded a new all-time high at 6185.4 last week. But weakness in momentum chart implies that the index can move down to 5967 or 5834 next week. A halt above the first support would indicate that the rally will resume, taking the index higher to 6202 or 6317 shortly. Traders can continue to buy in corrections as long as the second support holds.

For the medium term, a conclusive downward reversal next week will result in the Nifty moving between 5400 and 6200 for a few weeks before the up-move resumes. Traders can also watch out for a bounce from the intervening support at about 5700.

Global Cues

Equity markets were left with a let-down feeling as the Federal Reserve cut interest rates by ‘only’ 25 basis points. The old spectres of tightening credit market and increasing inflation in the US aggravated matters towards the end of the week.

The Dow Jones Industrial Average could not hold above the 13650 resistance and has slid towards its 200-day moving average at 13280.

A fall below this level will make the index head towards the 12700 trough once more. Most of the global indices have reversed last week and appear to have commenced the third leg of the down move that began in the first week of November. The year 2007 could end on a choppy note for equities.

International crude oil prices rose to an intra week high of $94.8. The shallow correction indicates that the bulls can take the commodity past the $100 mark this time. Comex gold is consolidating in a symmetrical triangle formation. This appears to be a good point at which to buy the metal. — Lokeshwarri S. K.

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