The Hindu Business Line : Index Outlook

The incessant pounding of negative tidings from overseas pushed the Sensex back towards the 8000-mark last week. There are multiple swords hanging over the market’s neck: Detroit automakers tottering on the verge of bankruptcy, the dire state of Citigroup, major economies slipping in to recession — to name a few. The desperation of the investors is amply reflected in the euphoric rally on Wall Street on Friday greeting the appointment of a new Treasury Secretary.

Sensex recorded an intra-week trough at 8316 on Thursday and just when everyone had braced themselves for an inevitable plunge below 8000, it reversed smartly on Friday afternoon. Derivative volumes were high on Friday implying that short-covering could have been the prime reason for the surge. The expiry of the November contracts next week could see the rally extend a few more sessions. Low open interest below Rs 50,000 crore is a positive.

The reversal on Friday, though heartening, has not changed the short-term outlook, that remains downwards. The momentum provided by this reversal can take the index higher towards 9320 or 9940 in the short-term. However, if the index does an about-turn in the early part of next week and fails to surpass the first resistance, it would imply that the down trend would resume to take Sensex down towards 7600 again.

The long-term support levels in the immediate vicinity are the October 2005 trough at 7657 and March 2005 peak at 6882. We have also explained that the next target of the third wave from the 21,206 peak is at 6887. These are the levels that we will look at, to buttress any sharp decline in the near future.

The most likely movement over the medium-term is a range-bound move between 7500 and 11000 as the index garners strength to fight back.

The upper targets for the week ahead are at 9320 and then 9941. If the second resistance in surpassed, a move towards the recent peak at 10945 would be possible. Supports can be expected from 8300 and then 7690.

Nifty (2693)

Nifty reversed from an intra-week trough at 2503 on Thursday. The index can move higher to 3167 or 3765 next week. However, if it fails to move past 3167, it would imply that weakness would resume and pull the index lower to 2502 or 2252 again.

The medium-term outlook for the index is neutral. A sideways move between 2200 and 3400 is likely over this timeframe. Long-term support levels to watch out for are the October 2005 trough at 2300 and March 2005 peak at 2183.

Global Cues

The down-trend that commenced in the first week of November continued to chip away at the global indices. Many of them breached their October lows while some are hovering close to these levels. CBOE volatility index spiked to 80 again implying that the state of investor’s nerves was as taut as it was in the last week of October.

Dow Jones Industrial Average gave everyone a scare by plunging to 7506 on Thursday. But the index closed the week above the 8000 mark. The 2003 and 2002 troughs at 7416 and 7197 are the immediate support levels for this index. The S&P 500 appears weaker than the DJIA since it declined below 2002 trough last week. But it needs to be remembered that these are long-term trend deciding levels so we need more than two weekly closes below 760 to pronounce the end of the structural bull market in this index.

Commodities did not fare any better. CRB index is hovering at 350; the level recorded in late October. Penetration of this level will drag the index another 15 to 20 per cent lower. Crude was one of the worst affected and declined to $49, as indicated last week. The next short-term support is at $46. — Lokeshwarri S. K.

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