The Hindu Business Line : Index Outlook

The Indian equity market, in its present all-forgiving mood, took the 25 bps hike in the cash reserve ratio in its stride, choosing to rejoice at the largesse doled out to IT companies instead. Sensex clung to the gains made in the preceding weeks, aided by the strong cues emanating from other equity markets.

Volume continued to be low though the open interest in the derivative section crept higher. The high put call ratio however reflects the sceptical mood at current levels.

Oscillators in the daily chart are nearing overbought levels and the weekly oscillators are in the neutral zone. The implication is that the index is at key medium-term trend deciding level, while it is a trifle overstretched from the short-term perspective.

The current uptrend from the 14677 trough has not impacted the long-term charts yet. Sensex continues to move below its long-term trend line, that is now positioned at 18600. The broad-based BSE 500 index is also below its long-term trend line. The 14-month relative strength index reversing from 55 is, however, a positive for the long-term outlook.

The Sensex moved sideways last week with an upward bias. Wave patterns suggest that the index could be charting a diagonal triangle over the last five sessions that can terminate the move that commenced at 15300. The targets for the third leg of the move from 14677 (if this is a flat formation) are 17078 and then 17756. An extension can, however, make the index go higher to 18139 or 19097.

In other words, the move from 14677 can end anytime from here and the index can launch into a short-term correction. But continuation of the up trend will take the index to the targets mentioned above. Medium-term outlook for the index will turn negative only on a decline below 16500.

The index closed above the 200-day moving average on Friday. But since this is a long-term tool, Sensex needs to sustain above the line for a couple of weeks more before the breakout can be taken seriously. The current up trend can take the index a little higher to 17756 or 17960. Traders should tread with caution as the index nears 18000. If this level is crossed, the next target is 18139. The supports for the week would be at 16745 and then 16210. Fresh longs should be avoided if the index declines below the first support.

Nifty (5228.2)

Nifty too made a tentative move higher last week, which makes it highly likely that the move from the 4448 trough could be drawing to a close. However, it is never prudent to fight the trend. Hence, wait for a decline below 5047 before initiating fresh shorts. The subsequent support for the week ahead is at 4888.

The current up trend has the immediate target at 5321. Failure to surpass this level would confirm our view that the market could launch into a short-term correction. However, if 5321 is surpassed, the next target for the index is at 5442. Investors can stay sanguine as long as the Nifty stays above 4900.

Global Cues

Equity markets across the globe made steady progress last though there were no runaway rallies, except in Brazil. Brazil has raced well past its 2007 peak with a 15 per cent gain for the week. Dow Jones Industrial Average is currently poised just below its 200 day moving average. The next target for the index is 13230. Asian markets put in a relatively subdued performance. Lokeshwarri S.K.

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