The Hindu Business Line : Index Outlook

Indian equities barely reacted to the news of Nuclear Suppliers Group lifting the embargo on trade with India, nor were they impressed by the decline of crude prices, that had been their principal tormenter this year, to $100. Instead, they looked for negative tidings to aggravate their current despondent mood and the fodder was provided by the string of US banks and finance companies lining up at the sick-bay.

Volume was good through last week but breadth turned negative as mid and small-cap stocks too bore the brunt of selling pressure. FIIs sold heavily in the second half of the week. Open interest has once again crept past Rs 80,000 crores. The low Nifty put call ratio is a cause for concern since it indicates that those betting on a recovery are greater in number.

Sensex reversed from the intra-week peak at 15,107 on Monday and moved to the lower end of the short-term trading band between 14,000 and 15,000. The daily relative strength index has declined to 42 while the rate of change oscillator has just entered into the negative zone. The index has also closed below the 50-day moving average. The inference from these indicators is that the index is currently at key short-term support zone. Another weak trading session will make the view explicitly negative. Conversely, an upward reversal from 14,000 can result in the Sensex moving higher towards 14800 or 15100 once more.

The medium-term trend in the Sensex is positive and we will retain this view till the index holds above 13,700. As we have been reiterating, the index can reverse higher from 13,700 or 14,000 and launch another leg of the medium term up-move towards 15900 or 17074. This count will, however, have to be discarded on a close below 13,700 as that would imply that the index would stay in the range between 12500 and 15500 for a few more months.

Though we stay with the positive medium-term view, the intense weakness in the other Asian markets makes it necessary for investors to brace themselves for another bout of volatility in the near-term. Inability to move past the near-term resistance band between 14,300 and 14,400 would accentuate the weakness. Fresh trading longs are recommended only above this level. Subsequent targets are 14654 and 15107. Supports for the week would be at 13680 and then 13529.

Nifty (4228.4)

Nifty too reversed lower on Monday, after forming a double top at 4500. The index is back at the lower boundary of its short-term trading range between 4200 and 4500. A reversal from here can take it higher towards 4410 or 4558 in the near-term. Conversely, breach of the 4200 support will drag the index lower to 4115 or 4075.

We stay with the positive medium-term view for the index as long as it holds above 4100. A reversal above this level can commence yet another leg of the correction that can take the index higher to 4732. However, decline below 4100 can usher in a sideways move between 3800 and 4800 for a few more months.

Global Cues

Panic returned to the equity markets once more last week. CBOE volatility index has climbed higher to 26.7, up from the trough at 18.6 recorded on August 22. Dow Jones Industrial Average recovered towards the end of the week. It is holding on to the support at 11200, though volatility has increased considerably. The bulls need not lose heart as long as this level holds.

European and Latin American markets were relatively stable. But there was disconcerting weakness in the majority of Asian markets. Indices such as Hang Seng, Jakarta Composite Index, KLSE Composite, Russia Moscow Times Index and Shanghai Composite index plummeted between 5 to 10 per cent. Most of these indices also recorded fresh 2008 lows.

Commodities too continued sliding, CRB index registered another 5 per cent loss last week to end at 470. The long-term trend line at 460 would be the key support to watch out for, in this index. Close below this level would proclaim a period of protracted down trend in commodities. — Lokeshwarri S. K.

More Stories on : Stock Markets | Technical Analysis | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Shree Cement: Buy

ICICI Prudential Indo Asian Equity: Hold

Bannari Amman Sugars: Buy

Time for a real(i)ty check

Educomp: Hold

Buy Gold ETFs

Index Outlook

Of markets and selective amnesia