The Hindu Business Line : Index Outlook

It was an irresolute trading week on the Indian bourses. There were no positive triggers to enthuse the market participants. On the other hand, the plethora of negatives that have been analysed thread-bare, do not appear to have the power to surprise or scare the markets anymore. Sensex closed the week with a 300 points loss.

Extremely low volumes in both cash as well as the derivatives segment reflect the lackadaisical attitude among the investors and traders. FIIs turned net sellers last week. Nifty put call ratio too implies that the market is equally divided between the bull and bear camps.

The short-term trend has turned negative with the decline in the Sensex last week. The 14-day Relative Strength index is poised at 47 while the Rate of Change index has moved in to the negative zone implying the Sensex could be under pressure in the near-term again. The weekly oscillators are rising in the bearish zone indicating that the medium- term outlook continues to be cloudy.

Though the index can decline in the near-term, the presence of key supports at 14300 and 13700 can cause sudden reversals that can catch bears unawares. The index is currently hovering around the 50-day simple moving average at 14284.

Reversal from current levels can result in a sideways move between 14300 and 15500 for a couple of weeks more. Such a move could be the halt before the index moves beyond 16000 over the medium-term. This view will stay until the Sensex closes decisively below 13700.

In e-wave terms, the down-move from 15579 could be the minor ‘b’ of the correction since 12514. The minor ‘c’ can take the index higher to the area between 16000 and 17000. But as we have been reiterating, it is very difficult to guess the pattern of a correction while it is unfolding. The mind-whirring number of counts makes such phases a nightmare for traders.

Sensex could move higher to 14831 or 15116 in the early part of next week. But turbulence caused by the expiry of the August contracts can arrest the rally at these levels. Supports will be at 14050 and then 13690.

Nifty (4327.4)

Nifty continued its losing streak by declining 103 points last week. The index is currently pausing just above its 50-day moving average at 4280. A move higher to 4443 or 4522 is possible next week. Reversal from either of these levels would provide shorting opportunity to short-term traders. Move beyond the second target is needed to make the near-term outlook positive.

However, the medium-term view for the index remains positive as long as it holds above 4115. Reversal from 4220 or 4120 would imply that that the index can rally to the zone around 5000 over the medium-term.

Global Cues

The crude, dollar and gold troika dominated the financial markets last week as analysts went nuts trying to explain how these affected each other and the equity markets.

With the dollar pausing its meteoric rise, crude moved between $111 and $120. Friday’s sell-off that came after a 30 per cent retracement of the decline from the recent peak at $147, implies that the support at $110 would be under severe pressure in the near term.

Dow Jones Industrial Average reversed higher from an intra-week trough at 11290, above the key short-term support at 11230 that we have been watching over the last couple of weeks. The S & P 500 is also putting up a resilient show. The key support for this index is at 1240. Though European and Latin-American markets stabilised last week, Asia remained turbulent. Many of the Asian indices such as Hang Seng, Shanghai Composite, Seoul Composite and Straits Times Index recorded new 2008-lows last week. — Lokeshwarri S. K.

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