The Hindu Business Line : Index Outlook

The Reliance Power stock slipping into a discount on listing assumed apocalyptic significance on Monday. The Sensex was down 1000 points at one point on that day. But sanity returned and markets stabilised to stage a recovery towards the second half of the week aided by the ubiquitous ‘global cues’.

Breadth remained negative for most part of the week and volumes were low indicating trading disinterest. The BSE small-cap index closed with a loss of 3 per cent while the mid-cap index closed with a marginal loss. The hammer candlestick pattern in the weekly chart of the BSE mid-cap index, with the lower shadow bouncing off the 40-week average, means that a short-term low could have formed last week.

Momentum indicators in the daily chart are giving tentative buy signals. The 10-day ROC is struggling to move in to the positive zone while the 14-day RSI is at a reading of 50.

The weekly oscillators are, however, still in the sell mode. The implication is that the Sensex needs to move a little further before the medium-term outlook turns positive. Until then investors need to stay watchful.

Sensex’s reversal from an intra week low of 16457 last week has complicated the counts. We stay with the assumption that the index is charting a pull-back rally since 15332.

This rally can extend to 18658 or 19011 as the third leg of this short-term move unfolds. But the index needs to clear the area between 19000 and 19500 to signal the resumption of the long-term uptrend that takes the index to a new peak.

If the Sensex fails to clear the 19000 peak next week, it will be a signal that the index could stay within the 16500 to 19000 range for a few more weeks.

Our outlook for the week is neutral. The index can move higher to 18298 or 18826. But selling pressure can be expected as the Sensex nears 19000. The supports will be available at 17100 and 16450. The index could take sudden twists and turns that can catch investor’s unawares. It would pay to concentrate on cherry-picking stocks for the long-term instead of watching the gyrations of the index.

Nifty (5302.9)

The Nifty dipped slightly below our near term target at 4867 to recover from an intra week low at 4803 last week. With this reversal, the near term trend has turned neutral. The range for the near-term is between 4800 and 5500 for the index.

The recovery that commenced last week can extend to take the Nifty to 5421 or 5828 next week. The key resistance zone for the index is between 5700 and 5800. Move past the upper band of the zone is required to signal the onset of a medium term up-trend.

Failure to clear the recent peak at 5545 will be a signal of weakness and will indicate that the index could move down towards 4800 once again

Global Cues

It was a week of mild recovery for global indices. The CBOE VIX moved lower to 25 denoting the reduction in investor trepidation.

The Dow Jones Industrial Average (DJIA) and the S&P 500 made a promising recovery in the first half of the week only to reverse on Thursday reaffirming the short-term down-trend.

The DJIA would have to move past 12920 and the S&P 500 has to close above 1400 to signal the onset of a medium term up-trend. However, the recovery is yet to gain pace in some Asian markets such as Hong Kong, China and Japan.

Base metals such as copper and aluminium continued to move higher.

Gold on Comex was subdued. But the current move between $890 and $940 would be construed a consolidation before the metal breaks out towards the $1,000 mark.

Crude is making a determined bid to rise towards the $100 mark. Move beyond will propel crude to the medium-term target of $127; that is the target of the fifth wave from the 1998 trough. — Lokeshwarri S.K.

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