The Hindu Business Line : Index Outlook

Sensex put up a gritty act last week, thwarting the correction that was threatening to drag it below 16000. The weak industrial production numbers, spiralling crude prices, galloping inflation et al were dismissed with a shrug as the index made a determined bid to regain the ground lost in the previous week.

The sentiment among the external investors underwent a positive change with FIIs turning net buyers in cash segment after a long hiatus. Volume was, however, indifferent and so was the market breadth. High Nifty put call ratio suggests that market participants are treading cautiously. Increasing open interest continues to be a source of concern.

The bearish implication of the engulfing candlestick pattern in the previous week has been nullified by the piercing pattern that followed this week. In other words, the Sensex has been moving sideways within a range between 16500 and 17700 over the last four weeks and firm conclusion regarding the next move of the index can be drawn only when the index moves out of this range.

The 50-day moving average at 16350 and the 200-day moving average at 17500 also form the boundaries of the current trading range in the Sensex. The 10-week rate of change oscillator has moved above the zero line in to positive territory for the first time since January 18, indicating that the current medium term move could take the index a little higher.

As per e-wave counts, too, we are faced with numerous possibilities. A firm close above 17800 would imply that the move from 14677 trough could extend taking the Sensex to 18345 or 18931. However, a sideways move between 16500 and 17500 ought to be eyed with caution as it can be a terminal corrective to be followed by a move lower towards 15800.

Sensex faces immediate resistance at 17500 (200 DMA) and then at 17736 (previous peak). A reversal from these levels will pull the index lower to 16500 once again. A move beyond the second resistance can take the Sensex to 18345 or 18731. Short-term supports for the index are at 16350 and 16150.

Nifty (5157.7)

Nifty reversed from our short-term support at 4920 and moved higher in line with our expectation. The area between 4900 and 4950 will continue to act as a key support for the short term and traders can buy in declines as long as this support holds.

But the index is drawing close to key short-term resistances at 5200 and 5299. A reversal from either of these targets can cause a decline towards 4950 again. Short term traders can book partial profits if the index struggles with these levels.A firm close beyond 5300 would imply that the Nifty is heading for 5428 or 5641. Stop loss for medium term investors can continue to be at 4800.

Global Cues

Global equity markets took a small step forward last week. The fears of a downward reversal and a move lower towards March lows have been pushed aside, at least for the present. The Dow recovered from an intra-week low at 12715. The index is currently knocking at the barrier posed by the 200 day moving average. Russian equity market has now joined Brazil is recording a new life-time high. Rest of the global equity markets have retraced between 30 to 60 per cent of the correction witnessed over the last seven months. China, however, remains a laggard. —Lokeshwarri S. K.

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