The Hindu Business Line : Index Outlook

With the secondary market already in doldrums, the year of the rat has begun with deep burrows being made at the root of the primary market as well. These are certainly ‘interesting times’ as the Chinese saying goes. But it is up to each investor to make the best of the situation, the gnawing rat notwithstanding.

Trading interest reached abysmal depths as turnover plunged in both cash as well as derivatives section. Average turnover in February has almost halved over that recorded in the last quarter of 2007. The relatively light open interest in the derivatives segment provides the silver lining as it implies a decrease in leveraged activity on our bourses.

The Sensex failed to move past 19000 last week reaffirming the intermediate term down trend. Weekly momentum oscillators are extremely bearish. The 14-week relative strength index (RSI) has moved to 46 portending the continuation of the current down move. The 14-day RSI too has reversed under 50, belying the strength in the rally from the 15332 trough. The 10-week rate of change has reached the levels last seen in May 2006.

Last week’s reversal suggests that the up-move from 15332 was the B wave of the correction or a dead cat bounce. If the C wave of the correction has commenced at 18895, it has the minimum lower target of 15261. A strong C wave that unfolds to its full capacity can take the index well below 15000. This count will be reinforced if the index slides below 16700.

In other words, the bears have the upper hand now but bulls need not lose heart as long as the Sensex holds above 16700. A reversal above this level can take the index towards the 19500 again. But the index needs to close well past the strong resistance band between 19000 and 19500 to signal that the worst is over.

The support levels for the week ahead are at 17114 and then 16740. The long-term average line at 16850 will also help to cushion any fall in the week ahead. A steep fall beyond this level will mean that the index is heading towards 15332 again. Resistances for the week would be at 18250 and then 19000.

Nifty (5120.3)

Nifty, too, launched in to a short-term down trend last week. The immediate supports for the index are at 4996 and then 4867. The 200-day moving average at 4978 will provide interim support to the index. The near term outlook will turn negative only if the Nifty falls below 4867.

However, weakness in the oscillator charts indicates that the C-wave from the 6347 peak could have commenced last week. This wave has the minimum target of 4371. But fresh shorts are advised only on a fall below 4867. Resistances for the week would be at 5340 and then 5545.

Global Cues

The fledgling rally that commenced on January 22 halted last week and global equities headed southward once again. Though the recent trough has not been penetrated yet, the reversal implies that the intermediate down trend continues to be in force in most indices. The Dow Jones Industrial Average has immediate support at 12100. A fall below this level will pull the index to 11182 or even 10203.

Asian equity markets, with the exception of Indonesia and Thailand, displayed a subdued trend. Commodity prices, including base and precious metals witnessed an up-tick. — Lokeshwarri S. K.

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