The Hindu Business Line : Index Outlook

Sensex trudged sideways and closed with 4 per cent gain last week. Massive cut in the federal funds rate, Madoff scandal and the Satyam imbroglio were the sidelights to an otherwise dull trading week. One positive take-away is that the index has clambered above the 10,000 mark.

Plenty of action was however witnessed in the mid- and small-cap segment with some of these stocks soaring through the roof. Volumes spurted towards the second half of the week as Sensex grappled with the 10,000-barrier. Steady increase in open interest too reflects that traders are once again becoming active in the markets. High put call ratio is however concerning as it implies complacency among the trading fraternity.

Momentum indicators in the daily chart have moved in to the bullish zone and are signalling that the uptrend can continue in the short-term. What is more important are the buy signals emerging in the weekly oscillators that are moving out of deeply oversold zone. Sensex has taken a step beyond the 10,000 resistance as well as the 50-day simple moving average.

As explained last week, Sensex is currently forming a flat A-B-C pattern that is a sideways moving consolidation pattern. The third leg of this pattern that is in motion now has the targets of 10,323 and 11,564. The completion of this pattern can either be followed by the resumption of the down trend or another corrective sideways move. Sensex can move in a band between 8500 and 11000 as these moves unfold.

Sensex can move higher towards 10323 or 10658 next week. The November-peak at 10,945 and key Fibonacci retracement level at 10,728 make the entire zone between 10,700 and 11,000 a formidable resistance. Investors should watch their step in this band. Downward reversal from here will pull the index towards 9000 again. Short-term supports are at 9471 and 9086. Fresh trading longs should be avoided on a close below the first support.

Nifty (3077.5)

Nifty closed firmly beyond the resistance at 3000 last week. Though the short term trend in the index is up and there can be one more spurt higher to 3171 or 3255, investors need to stay watchful. For Nifty is close to the strong resistance zone between 3150 and 3250. A downward reversal from here can take Nifty lower towards 2500 again.

Short-term supports are at 2880 and 2740. Traders can play long as long as the index holds above the first support. Our preferred medium term range stays between 2500 and 3500 for the index.

Global Cues

Most global indices moved sideways, retaining the gains made in the previous week. DJIA was volatile in a narrow range and closed with a marginal loss. The short-term trend in this index is however up and a rally to 9500 is possible over the next month or so. Many other indices such as the FTSE, Hang Seng, Nasdaq Composite, S&P 500, Straits Times Index, Taiwan Weighted, Thailand SET and so on are also consolidating sideways and could surge higher in one more attempt at a year-end rally. It however needs to be borne in mind that the medium-term trend in all these indices is sideways since the last week of October.

CRB index too stabilised at lower levels. It is tantalisingly poised on the key long-term support at 350. A strong surge is needed from here to take the index out of the woods. Base metals and crude are weighing down the index while agri-commodities such as cocoa, corn and coffee and precious metals are preventing a sharp decline. — Lokeshwarri S.K.

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