The Hindu Business Line : Index Outlook

There were no ‘positive surprises’ for the stock market fraternity in the Union Budget and they were additionally beleaguered by the hike in the short-term capital gains tax. However, the measure has been accepted with great equanimity leading us to hope that the sellers might have exhausted their supplies by now. Sensex ended the budget week with a marginal 1.5 per cent gain.

The expiry of the February series was very smooth and the derivative segment began March with light open interest; around Rs 58,000 crore.

The Nifty put call ratio has, however, zoomed to 1.5 indicating that market participants preferred to roll-over the short positions expecting a fall in the coming months. This is a positive since short-covering can curtail a deep fall.

The oscillators in the daily Sensex chart are indicating that the near-term could turn volatile again. The 10-day rate of change oscillator moved in to the negative zone after recording a lower peak and the 14-day relative strength indicator has moved below 50. The weekly oscillators are, however, stabilising in the over-sold zone hinting at a medium term reversal soon.

A converging triangle is being formed in Sensex since the third week of January. This is a neutral pattern implying that a move in either direction is possible. The index is once again close to its long-term moving average, at 17100. If this support holds this week, Sensex can move higher to 18405 or even 19115 in the short-term. But a move below will drag the index towards 16500.

The medium-term outlook for the Sensex stays neutral. The medium term range for the index is between 16500 and 19000.

The risk at this juncture stems from the intermediate term trend that is down since the January peak at 21206. After recording a low at 15332, the index is now moving sideways. If the C-wave from 21206 has started at 18895, Sensex could move down to re-test its January 22 low. A weekly close above 19500 is needed to mitigate the negative intermediate term outlook.

Now, that the Union Budget has been dealt with, global events would take centre-stage once again. Investors should brace themselves for another bout of volatility in the near term. But the short-term outlook will turn distinctively weak only on a close below 17100. The next support for the index would be at 16500.

Nifty (5223.5)

Nifty closed the budget-week with a gain of 2 per cent. The near term trend in the index is up since the trough at 4820. This up-trend will reverse only if the Nifty falls below 5000.

Short-term traders can hold their long positions as long as this level holds. A reversal from here can make Nifty rise to 5349 or 5565.

The supports below 5000 would be at 4803 and then 4448.

The medium-term range for the index is between 4800 and 5500. Break-out beyond either boundary is needed to determine the next move of the index.

Global Cues

Global equities turned weak towards the later part of the week after the Federal Reserve Chairman once again raised concerns over the ailing financial sector.

European and US indices reversed downward and have moved close to the lower band of their short-term range.

A recovery next week will result in this range continuing over a couple of weeks more.

Conversely, a sustained fall will make these indices test their January lows.

Few of the markets in emerging economies such as Brazil, Thailand, Taiwan and Malaysia are inching higher once more indicating that global risk-aversion could be on the wane.

Commodity prices are gung-ho, racing to new peaks. Nymex crude prices recorded a peak of $103.05 during the week.

Base metals such as copper and aluminium are also close to their 2007 peaks. Gold is within arm’s length of the psychological $1000 mark. — Lokeshwarri S. K.

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