The Hindu Business Line : Index Outlook

Dalal Street is all set to give a thumping farewell to 2007 that will go down in history as the year of the raging bull market. Every correction in the year has been met with a renewed charge that made the index rise to a new peak; eliciting whoops of joy from all those who hitched their bandwagons to this stampeding bull.

The penultimate week of the year was no different and the pyrotechnics last Monday sent the bears scuttling back to their lairs. The renewed faith on the street that the rally would spill over to the beginning of 2008 resulted in a healthy roll-over in the F&O segment. Volumes were quite low since many of the market participants seems to have gone on year-end vacations. FIIs turned net buyers in cash once more and have thus taken the net inflows in December to $1.1 billion.

With just one trading day to go for the year, the Sensex seems determined to end 2007 above 20,000. The index reversed smartly last Monday thus averting a fall below the 19,000 level. As explained in last week’s column, the index is moving sideways over the medium term with the upper boundary placed at 20500.

A downward reversal from this resistance will result is a few more weeks of consolidation between 19,000 and 20,500. But a move past this level will take the Sensex towards our medium term targets of 20,942 or 22,627. The medium-term outlook stays positive as long as the index stays above 18,180.

The near-term outlook for the Sensex is positive though some degree of caution needs to be exercised as the index nears its former peak at 20,498. Weakness in global indices can also peg back the index in the week ahead. If the Sensex powers beyond 20,500, the next target would be 20909. The supports will be available at 19,774, 19,435 and finally at 18886. Short-term investors can buy in corrections with a stop at 18,880.

Nifty (6079.7)

Nifty steadied itself above the support at 5650 and staged a brilliant reversal from there last week. The targets for the third wave from 5394 trough are 6164 and then 6507. In other words, the index will face resistance around the former peak at 6185. But once this level is surpassed, it can rally to 6500.

Short-term supports for the index will be 5842 and then 5676. Corrections to the first support can be used to go long with a stop at 5660.

Our medium-term targets for the Nifty remain at 6262 and then 6795. However, a mild correction from the 6185 zone can result in a few more weeks of sideways move before an upward break-out.

Global Cues

Santa Claus rally did make an appearance towards the first half of last week to ensure that equities bid adieu to 2007 on a fairly cheerful note. Most markets ended the week with gains despite the US markets’ scary tumble on Thursday. The near-term outlook for Dow Jones Industrial Average is neutral after the roller coaster move witnessed in this index last week. The Nasdaq Composite Index has reversed downward below 2750; belying the strength in the previous week’s pull-back.

Asian indices such as Nikkei and Hang Seng resumed their medium-term down trends towards the later part of last week. The Shanghai Composite displayed greater strength; holding on to the previous week’s gains. Taiwan and Thailand were the other markets that closed the week on a positive note.

It was a good week for most commodities. Crude and gold are inches away from their previous peaks. Agri-commodities such as cotton, corn and sugar too are revving up towards the end of the year. — Lokeshwarri S. K.

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