The Hindu Business Line : Index Outlook

The New Year celebrations spilled over to the first week of 2008. The party is getting too boisterous as lesser-known and long-forgotten stocks are now beginning to crawl out of the shadows to join in the merry-making. Needless to add, that it was the BSE Small-cap Index that walked away with the laurels with a lofty 7 per cent gains last week.

FII activity was rather muted last week though they were seen unwinding their positions in the stock futures. This seems a prudent move by the external investors given the burgeoning open interest on the NSE and the predominance of stock futures in these positions. The increase in Nifty put call ratio too denotes that large investors are beginning to take greater precautions at these levels.

Sensex closed the week on a strong note, just above its current trading band. The daily momentum indicators are reflecting this bullishness but the weekly oscillators are diverging negatively and are giving sell signals. This calls for some degree for caution going ahead. One minor wave from the trough at 18886 is nearing completion and we could see a small correction to 20200 or 20046 next week. Revival from either of these supports would ensure that the index moves higher towards 21359 or 22076.

But a fall below 20046 would take the Sensex towards its 50-day moving average positioned at 19600. Short-term investors can buy in corrections as long as this support holds. Our medium-term view remains unaltered. The index would vacillate between 17500 and 22000 over the next few weeks.

If taken in isolation, the Sensex is raring to make a dash towards 22000. But if we take the weakness in the US indices into account, a mild correction is in the offing. This correction can pull the Sensex lower towards 20200, 20046 or 19600. Resistance for the week ahead would be at 20909 and 21359.

There are however no signs of weakness in the mid-cap and small-cap indices. These stocks could continue to thrive. We don’t wish to be the party poopers. So do enjoy the rally while it lasts. But keep taking money off the table regularly. Fresh investments, if any, should be made with short-term perspective only.

Nifty (6274.3)

Nifty broke out of the sideways range towards the end of last week and attained our first short-term target of 6164. If the index continues in its current trajectory, it could be at the second short-term target of 6500 soon.

However, there could be a mild correction in the near-term to 6112 or 6062. A halt above either of these supports can be utilised by traders to initiate fresh long positions. Short-term targets for the Nifty are 6394 and then 6560. Fall below 6062 would pull the index to the short-term trend deciding level of 5914.

Global Cues

All hopes of renewed investor optimism in the New Year that takes the Dow Jones Industrial Average to new highs came to naught due to the 4 per cent tumble in the first week of 2008.

The index is once more nearing the 12500 mark that is the intermediate- trend deciding level.

The 14-week RSI at a reading of 41 too indicates that there is more pain in the offing for the index.

The picture in Nasdaq Composite is much more ominous; the index has breached its November 2007 trough and its long-term 200-day moving average as well. Thankfully, the situation is not that dire in other global markets.

The CBOE VIX recorded a sharp spike to 24, reflecting the panic in US equity markets.

The year 2008 has started on a strong note for most metals.

Comex gold is at a new high, while base metals such as copper and aluminium perked up.

Crude touched the $100 mark during the week and is all set to move past the level to $103 or $111 over the medium-term. — Lokeshwarri S. K.

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