The Hindu Business Line : Index Outlook

Stock prices suffered as a result of investor apathy last week as market participants took a much-needed break to indulge in some year-end revelry. Volumes plunged and Sensex ended 7 per cent lower. Talks of yet another stimulus package elicited no response from the investor fraternity.

December contracts in the derivative segment expired smoothly. Turnover in the derivative segment was however very low especially on Friday when it was at the lowest level recorded in the last six months. This is yet another indication that traders have switched off their trading terminals, albeit temporarily. FII activity also witnessed a marked slowdown last week.

Sensex failed to build on the rally recorded in the previous week and declined from a peak of 10,173 on Monday. An evening-star formation, that is a bearish reversal pattern, is evident in the weekly chart. The index has closed below its 50-day moving average. The 10-day rate of change oscillator has withdrawn in to the negative zone and the 14-day relative strength index is at 45. These indicators imply a negative bias for the near term.

The short-term view will however turn overtly negative only on a close below 9000. A reversal above this level can take the index higher to 10,300 or even 11,000 over the next couple of weeks. Conversely, a close below 9000 will imply an impending move to 8,560 or 7,560.

Interestingly many of the global indices including the MSCI world have formed a lower trough on November 20 and a short-term rally is unfolding from here. All of these indices have to overcome multiple resistance levels before a medium term up-trend can be ascertained. India and a few emerging markets formed a higher bottom in November and appear to be in a range since October.

There is a strong resistance in the band between 10,700 and 11,000 for the Sensex that needs to be surpassed before volatility subsides and the risk of a decline below 8,000 abates.

Sensex can decline to 9,200 or 9,000 in the week ahead. The down-move will accelerate if 9,000 is breached and the next target would be 8,563. Resistances for the week are at 9,840 and 10,188.

Nifty (2857.2)

Nifty reversed lower from 3,110 on Monday and declined to 2,845 by Friday. Near-term outlook for the index is negative but there is key support at 2,740. A reversal above this level can take the index higher to 3,100 or 3,250 again. On the other hand, decline below 2,740 will mean that the index is heading towards 2,653 or 2,502 again.

Key medium term resistance level for the index is between 3,150 and 3,250. As long as Nifty trades below this zone, volatility will persist and a decline below 2,500 will remain on the cards.

Global Cues

Christmas cheer failed to enthuse equities and most global markets eased downward in a truncated trading week. DJIA is halting around the support at 8,400. The short-term outlook for this index remains positive as long as it stays above 8,000. We adhere to the view that a move to 9,500 is possible over the next month or so. Asian markets too moved sideways just below short-term resistance levels.

CRB index that tracks the movement of commodities moved in a narrow range between 320 and 360. As explained earlier, key long-term support for this index is at 350. Gold dazzled on Friday, moving above the long-term average at $860. Key medium-term resistance for this metal is at $900. Once this level is crossed, next target would be $987. However, a short-term pull back is likely from the $900 level. The outlook is quite weak for copper and aluminium that are dropping in to a bottom-less pit. — Lokeshwarri S. K.

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