The Hindu Business Line : Index Outlook

Vigorous fire-fighting is on across the globe with central banks slashing interest rates blindly and stimulus packages being doled out all around in a bid to reduce the impact of recession. If reaction of equity markets in respective countries to such measures is anything to go by, any euphoria induced by the package promised to us over the weekend is not likely to last beyond a day.

One positive factor to be noted in the charts of most global indices is that they are still holding well above their October lows. That keeps the door open for a Santa Claus rally to jingle through equity markets in the second half of December. Trading was extremely lackadaisical with very low volumes in both cash and derivatives market. Open interest in the futures and options was abysmal, below Rs 40,000 crore, implying lack of conviction among traders.

It was status quo in the Sensex last week with the index scarcely budging beyond the narrow range defined in the previous week. Momentum indicators in the daily chart are displaying positive divergence signalling that the index can move higher in the near-term. Weekly oscillators are however still very weak reflecting the bleak medium-term picture.

It needs to be borne in mind that the trend along long-term, intermediate term and short-term time-frame is down. The medium-term trend is however sideways and the range that is envisaged for this period is between 8000 and 11000. The index is pausing close to the lower boundary and moving sideways is a very lacklustre fashion.

As explained last week, an upward reversal from here will take the index higher towards 10323 or 10945 again. Conversely, a close below 8500 will mean that the down-move that began from 10945 is unfolding its third leg that has the targets at 7715 and 6794.

We have a neutral view on the prospects of the week ahead. The resistances would be at 9970 and 10500 where the 50 day moving average is positioned. A close above 10500 can usher in a move to 11564. Supports would be at 8500, 8316 and 7697.

Nifty (2714.4)

Nifty too trudged sideways between 2550 and 2850 last week. A spurt in the early part of next week will take the index up to 2958 or to the 50-day moving average at 3150. A reversal below the first resistance would provide the opportunity to initiate fresh shorts in the index.

However, if the Nifty declines below 2500, it would imply that the down move from the 3240 peak has resumed and the downward targets in this case are at 2365 and 2083. The preferred view is that the index moves sideways between 2500 and 3500 over the medium-term.

Global Cues

Nervousness returned to financial markets as recession was officially declared in the US. This caused a sharp plunge of around 8 per cent in Dow Jones Industrial Average (DJIA) and the S&P 500. The decline, however, did not sustain beyond a day and the indices continue to hold firmly above their late-October lows. Unless the S&P 500 declines below 800 and the DJIA below 8000, the short-term view remains positive.

Most indices are moving in a broad range since the last week of October and a sharp move is possible in either direction once the breakout happens. CBOE Volatility index however spiked to 60 and the CRB index representing a basket of commodities plunged 10 per cent lower indicating that de-leveraging has not ended yet.

What is more, the CRB index is now below the key support at 356. Unless commodities turn around next week, the losses in this segment can widen considerably. Nymex crude prices fell to $40/1000 barrels on Friday. There is support at current level on the long-term charts. The next support for the commodity is at $25. — Lokeshwarri S. K.

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