The Hindu Business Line : Index Outlook

‘Stability’ was the theme in the Indian stock markets in August; accompanied by the attendant boredom. Though the Indian benchmark was thwarted in its attempt at surpassing the 15500 mark this month, it has managed to hold on to most of the gains made in the second half of July and has recorded a second positive monthly close.

This leaves room for the hope that with the advent of September, the rally from the July trough will progress further. FII selling abated last week though the tally for August stays negative. Turnover was dull in the first half and picked up in the last two trading sessions. The August series on the derivatives segment expired with healthy rollovers.

With the intra-week trough at 14002, the Sensex has retraced exactly half of the move recorded from 12514 to 15580. Despite the close below the 50-day moving average on Thursday, the weekly close is well above this line. The sagging momentum on the daily charts received a fillip from Friday’s rally. The 10-week rate of change oscillator that is on the verge of crossing over into the positive territory should be closely watched next week. Successful crossover would signal that the medium-term up-trend from 12514 would resume.

The short-term trend in the index is down since the 15580 peak. The sideways move between 14000 and 14700 over the last two weeks could be a temporary halt before the down-trend resumes to take the index lower to 13690 or 13140. The risk of another bout of volatility will be averted only when the index is safely above 15000.

That said the fact that the Sensex is holding above 14000 is a positive from the medium- term perspective. As explained in our previous column, our medium-term view will stay positive as long as the index sustains above 13700. This will leave open the count that the third leg upward from the 12514 trough can take the Sensex higher to 15900 or even 17074 over the next couple of months.

The air of skepticism pervading the markets and the bouts of profit-taking that it causes, would pose numerous hurdles to the Sensex in its journey higher. The resistances next week would be at 14796 and then 14990. A close above the psychological 15000 mark would take the index to the previous peak at 15586. Supports would be available at 14002 and then 13700.

Nifty (4360)

Nifty reversed from the intra-week trough at 4398 last week. The index has closed above the 50-day moving average and has also reversed after retracing 50 per cent of its previous up-move. If a medium-term trough has been formed at last week’s low, then the index can rise to 4732 or 5061 over the medium-term. This view will be negated only on a weekly close below 4115.

In the short-term however, the index will face resistance at 4425 or 4478. Reversal below these levels can take the index lower towards 4200 or 4115. Target beyond 4478 is 4649.

Global Cues

The CBOE volatility index, also known as the investor’s fear gauge, is trending lower and is fluctuating between 18 and 22 since early August. This signals that investors have learnt to live with the current gloomy market conditions.

The European markets had a strong week. The FTSE moved above the peak recorded in mid-August thus signalling the resumption of the up-trend from the July trough. CRB index, reflecting the commodity prices is attempting to stabilise at lower levels. The index is also hovering around its 200- day moving average that helps determine the long-term outlook. The upcoming weeks will help us determine the long-term outlook on commodities as a whole.

The Dow Jones Industrial Average is whipsawing in the zone between 11300 and 11700 showing the battle for supremacy that is raging between the bulls and the bears. As explained earlier, a decline below 11230 will make the outlook bleak whereas a reversal from here will open the path for a surge towards 12100.

Asian stock markets presented a mixed bag with no discernable trend among the indices.

— Lokeshwarri S. K.

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