The Hindu Business Line : Index Outlook

Last Tuesday’s fireworks has dispelled the gloom and led some quarters to hope that the elusive ‘bottom’ is finally in sight. The recovery was spurred by a surge in equity prices across the globe, and for once, no one was complaining about the herd mentality in the global investing fraternity.

The March series of derivative contracts expired without any turbulence. But the low roll-over and the open interest at the beginning of the April series reflects the extent to which the trading sentiment has been dented by the recent fall. The high Nifty put-call ratio; above 1.4 is indicative of the participants’ willingness to roll-over their short positions, in anticipation of further erosion in stock prices. However, overseas investors do not seem to share this despondency as they turned net buyers in cash, last week.

It is after a long hiatus that we have a number of factors to cheer about in the technical charts. The oscillators in the daily chart have recorded a positive divergence and the weekly oscillators have reversed sharply from over-sold levels. A morning star (medium-term reversal pattern) is also apparent in the weekly candlestick chart. The break-out gap formed last Tuesday also remains open.

While these indicators are reflecting a positive short-term undercurrent, the medium-term outlook has not turned positive yet. We adhere to the view that the index needs to move above 17200 before the medium-term trend turns positive. The presence of both the 50 and the 200-day moving averages at this level add to its significance.

The intermediate term trend remains down and the long-term trend of the index is still under threat. The fact that the index has bounced from key support level at 14677 is a positive but it would be premature to infer that a long-term trough has been formed. This rally could be just another leg of the ongoing correction as the index meanders between 14000 and 19000.

The current up-trend from 14677 can take the Sensex higher to 16878 or 17502. The resistance at 17200 will be also try to impede the upward move next week. Fresh purchases are recommended only if the index gets past 17500. The supports will be available at 15686 and then 15300.

Nifty (4942)

The Nifty moved higher, contrary to our expectation and recorded an intra week peak at 4970. The current uptrend can take the index to 5043 and then to 5213. Short-term traders can hold on to their long positions with a stop at 4740. The next support for the index is available at 4640.

But as indicated last week, the medium-term outlook will turn positive only once the index moves past 5250. The presence of the 50 and 200-day moving average at 5100 makes it another key resistance level to watch out for.

Global Cues

Nerves were assuaged somewhat and global equities tried to steady themselves at lower levels last week. CBOE VIX, the fear gauge, remained at around 25; down from the recent peak at 35. Most equity markets closed on a positive note for the week. The performance of the Dow Jones Industrial Average was, however, disappointing. The index reversed from an intra week high of 12600 and moved below the previous week’s close. The S&P 500 index too reversed below the resistance at 1350 indicated last week, thus keeping the near-term outlook under a cloud.

Though most Asian equity markets began a tentative recovery last week, the Shanghai Composite continued to trudge lower. It has now retraced half of the move recorded from July 2005. The next long-term support for the index lies around 3000. Taiwan and Thailand equity markets are among the out-performers in this nascent recovery.

Agri-commodities and precious as well as base metals halted their scary plunge last week. Nymex crude recovered from an intra week trough at $99.1. This commodity is set to rally to $114 once it surpasses the recent peak at $111.8. — Lokeshwarri S. K.

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