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It was a week when all one could do was, watch awe-struck, as stock prices fell in to a bottomless pit. The Sensex effortlessly sliced though one support level after another despite efforts by the troika of the Finance Ministry, SEBI and the RBI to stem the decline. The 100 basis points cut in repo rate, meltdown in commodity prices and lower WPI numbers were shrugged aside as Sensex tumbled 1274 points lower.

There is still a week to go before October ends and FIIs have already pulled out close to $3 billion. Tally for outflows in 2008 has crossed $12 billion. Turnover was brisk, mainly in the derivative segment. The expiry of the October contracts in the derivative segment is expected to pass quite smoothly since the open interest is quite low around Rs 50,000 crore. Low Nifty put call ratio indicates that short positions are being squared at lower levels.

The bear onslaught on Friday dragged the Sensex below 9700 to an intra-week low at 8566. We have stressed the importance of 9700 often in our previous columns. It occurs at 61.8 per cent retracement of the structural up-move from 2001. The structural trend in the Indian markets stays up as long as this level holds.

However, these are long-term support levels. We will wait for two more weekly closes below 9700 to ascertain that Friday’s move was not a false break-out. Conversely, a weekly close above 9700 will make the medium-term view positive again. The support at 8800 (June 2006 trough), indicated in our long-term outlook review was also penetrated on Friday. Next support on the long-term chart is the October 2005 low at 7700.

As per E-wave counts the first target for the C wave from 21206 peak is at 10207. But the continuation of the decline last week has made it apparent that this wave could unfurl to the next target - that is 6887. Minor counts of the down-move from 15579-peak too indicate that if the Sensex declines below 8000, the next halt would be in the zone between 6200 and 6800.

For the week ahead, it needs to be remembered that Sensex is hovering at a key long-term support and a rebound is possible anytime. Supports for the week would be at 8566, 8152 and then 7582. Resistances would be at 9900 and then 10750. A close above the second resistance is needed to make the short term view positive.

Nifty too has penetrated many important long-term supports on Friday. It declined below 2950 as well as the June 2006 trough at 2595. Since the first target of the third wave from the 6357 peak at 3070 has already been penetrated emphatically, it is time to take a look at the next target that is 2093. However, a recovery from current levels that results in a weekly close above 3070 will mitigate the bearish medium-term view.

For the short-term, Nifty can decline to 2525 or 2276. Resistances for the week are at 2972 and then 3254. Close above the second resistance will make the near-term view positive. Failure to move past the first resistance will be a cue for traders to initiate fresh short positions.

Just when things appeared to be settling down in the equity markets, the selling started once more, with renewed vigour. CBOE volatility index soared to 89.5 before closing at 79.1 on Friday, reflecting that fact that investors’ panic is reaching unheard of levels. The Dow Jones Industrial Average has turned in a better performance than most other indices last week. Though it gave up all the gains recorded in the previous week, it is still above the trough formed on October 10 implying the index is trying to stabilise itself. The 2003 trough at 7400 and 2002 trough at 7200 should provide support to the index if it resumes its downward trajectory. Nasdaq Composite Index closed at a five-year low last week. The next support for this index is at 1250.

Asian stocks too took a hard knock. Nikkei is just a whisker’s breadth short of the 2003 trough at 7603. Next long-term support for this index is the 1982 trough at 6850. Other indices such as Hang Seng, KLSE Composite, Kospi, Taiwan and Thailand index closed below key support levels. — Lokeshwarri S. K.

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