The Hindu Business Line : Index Outlook

Now that the US Federal Reserve has pandered to the desires of their stock markets and Reserve Bank of India has not, it is time to move on and splurge the money refunded from the Reliance Power and Future Capital IPOs back in the stock markets. Or so the wise ones in the market would have us believe. Hopefully, reason would prevail this time around in stock selection and portfolio allocation.

The expiry of the January contracts in derivative segment passed peacefully and the massive reduction in open interest at the beginning of the February series is a big positive for the market. FIIs were selling all through the week. But that is not too worrisome, as they tend to reverse their stance at the first whiff of a turnaround.

Indian markets did well to hold their ground despite the pressures from multiple quarters. The Sensex ended the week with marginal loss. There is a doji candlestick pattern in the weekly Sensex chart indicating status quo. In other words, the medium term direction of the index stays indeterminate. We are yet to determine if the up-move from 15332 is the B wave of the correction (bear market pull-back) or the beginning of a fresh long-term up move.

If the first alternative is true, then the C-wave down can pull the index lower towards 15000 once more. The intermediate term trend deciding levels in the Sensex is 19500. Move beyond this level would mean that the index is proceeding to a new high, once more.

The near term trend in the Sensex is positive but it is facing resistance around 18500. The 10-day ROC in the negative zone and the 14-day RSI at 45 imply that caution is warranted in the short-term. However, a move beyond 18500 level would mean that the third leg of the move from 15332 trough is in progress and that can take the Sensex to 19369 or 20576.

The Sensex will continue to experience selling pressure at higher levels in the week ahead. The upward targets for the week are 18980 and then 19369. Supports would be available at 17284 and then 16539. The near term outlook will stay positive as long as the index stays above the second support.

The fact that the markets did not bounce back with gusto has made a vestige of pessimism creep in last week. Although trading could be difficult in such volatile times, investors ought to be nibbling in to blue chips that are currently shorn of the speculative froth.

Nifty (5317.2)

Nifty, too, was biding its time last week, moving in a narrow sideways band. The intermediate term resistance for the Nifty would be at 5800. A move beyond this level would mean that the index is moving on to a new high. However, momentum indicators are signalling that the medium-term trend continues to be down.

The near term supports for the index are 5108, 5034 and 4816. Short-term traders can watch for buying opportunity in corrections to these levels. The resistance for the week will continue to be at 5400. Move beyond this level will take the index to 5658 or 6022.

Global Cues

The lows recorded on January 22 went unchallenged last week as most global markets hung on to their gains. The CBOE VIX indicator moved lower towards 25 from the recent peak at 30, implying that investors were breathing more easily now.

The Dow Jones Industrial Average faces immediate resistance at 12920; which is the 50 per cent retracement of its previous down move.

Although the near term outlook is positive for the US and European indices, the medium term outlook remains under a cloud. The picture would become clear only after a couple of weeks more.

Asian indices were relatively subdued last week. The worst performer was, however, the Shanghai Composite Index that has recorded a six-month low last week. This index is charting the C-wave from the October 2007 peak that has the next target at 4250.

The Nikkei and the Taiwan Weighted Index were the other indices that were found struggling at lower levels. — Lokeshwarri S. K.

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