The Hindu Business Line : Index Outlook

For once, the Sensex scaled a 1000-point peak without any fanfare. Market participants were too preoccupied with the small-cap meltdown to pay much attention to the crossing of the 21000-milestone by the benchmark. The cheers were reserved, and deservedly so, for Nano — the people’s car from the Tata stable.

Market breadth was abysmal for most part of the week. Flows from external investors, too, were muted. The derivative segment continues to see a humungous build-up. The open interest on NSE derivative segment is almost Rs 1,25,000 crore. However, increase in the Nifty put-call ratio gives some degree of comfort.

It was a difficult week for most in the Indian markets. But the large-cap stocks came to the rescue of the Sensex and helped it to close the week on a positive note. The short-term trend in the index continues to be up. Another upward thrust in the early part of next week can make the index move higher to 21964 or even 22851 in the near term. The near term outlook will not be marred unless the index dips below 19800.

The medium term view stays neutral. The index is currently close to the upper boundary of its medium term range and we can envisage another 10 per cent upside from these levels over the medium term. The target of the final wave from 12316 trough falls at 20942 and then 22627.

The outlook for the week ahead stays positive for the Sensex. The mild correction that started last week can stop at 20500 or 20320. Halt above either of these supports would mean that the index is heading higher towards 21206 or 21964. However, fresh longs should be avoided if the index slips below 19700.

BSE Small and Mid-cap Indices

The hard knock that the BSE Small and Mid-cap index took last week makes a closer look at both these indices imperative. The BSE Small cap index lost 8 per cent and recorded a massive bearish engulfing candle on the weekly chart. But e-wave counts suggest that these indices will move sideways for a few weeks before they finally peak.

These indices are currently charting the third wave from the June 2006 trough. The third of third has yielded bounties for all the investors so far. But the indices can now slow-down and move sideways as the third wave completes, and the fourth and fifth waves unfold.

Both the indices are perched above key short-term supports and a short-term reversal is possible from here.

Nifty (6200.1)

Unlike the Sensex, the Nifty closed the week with a marginal loss. However, the fall in the index last week appears to be short-term in nature and is likely to be arrested at 5937. A reversal above this support would mean that the Nifty is headed towards 6533 or 6793 shortly. But traders should avoid initiating fresh long positions if the index falls below 5937.

The presence of the 50-day moving average and the short-term trend line at 5900 makes it a key short-term support for the index.

Our medium-term outlook for the index stays unaltered. The index is expected to fluctuate in a wide band between 5000 and 6700 over the medium term.

Global Cues

Global stock markets were turbulent last week. The Dow Jones Industrial Average is poised just above the intermediate trend deciding level of 12500. A reversal from here can take the index to a new high while a move below would usher in a move down to 12100 or even 11650.

The Nasdaq Composite is sinking in to a long-term down trend and has given up 50 per cent of the gains recorded since July 2006. The weakest of them all is the Nikkei, which has retraced 38.2 per cent of the move recorded from April 2003!

Rest of the Asian indices meandered sideways at lower levels. The only indices that are showing some strength are the Shanghai Composite, KLSE (Malaysian index) and Jakarta Composite Index. — Lokeshwarri S. K.

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