The Hindu Business Line : Index Outlook

Sensex is on a roll! It has snapped 28 per cent higher from the March 6-trough and this is the fourth consecutive positive weekly close for the index. The bulls appear to be in no mood to relinquish control just yet and the speed with which Sensex rebounded last week only reinforces this view.

There was a vicious sell-off last Monday as GM and Chrysler edged towards bankruptcy. But with the postponement of this event, other worries on the economy, corporate and political fronts too have been swept under the carpet. A satisfactory G-20 meet has further aided the sentiment and helped market participants go in to a long weekend in a complacent state of mind. Volumes were high both in cash and derivatives, especially on days on which the stocks advanced.

Sensex declined to 9520 on Monday but the correction did not extend beyond one-trading session and the index has closed the week well above the psychological 10,000 mark. The weekly momentum indicators have moved in to the bullish zone from the neutral after a long hiatus implying that this rally can continue in the medium term. There is however no perceptible change in the monthly oscillators yet implying that the long-term outlook is still bleak.

We had outlined two possible medium-term trajectories for Sensex in our previous column. According to the first count, the index would stay in the band between 8000 and 11000 for a few more months. The second count assumed that a counter-trend rally of a larger degree is in progress since 8047 that can take the index closer to 12,000.

In other words, a close above the November 2008 peak at 10,945 is needed to signal that an intermediate term up-trend is in progress in Sensex. The minimum targets for such an up-move if we apply retracement of the down-move from January 2008 peak, are 11750 and 12900.

The short-term up-trend from the 8047 trough is still going strong but a five-wave move is drawing to a close. The targets for this move are 10314 and 10664. Since the first target has been achieved, a short-term correction can ensue soon that results in a sideways move for a few sessions. Short-term traders can therefore ride out this up-move with trailing stop losses while investors should wait for a correction to buy stocks.

Near-term targets for Sensex are 10470, 10664 and 10945. The 200-day moving average at 11392 will also be an important resistance if the rally progresses further. But a halt below the second resistance can usher in a correction to 9700 or 9000.

Nifty (3211)

Nifty flirted with the 3200-mark on Friday and closed slightly above it. This does not qualify as a break-out. Since this level has been the ceiling for the index over the last five months, we would like to see a close at least 2 per cent above 3240 before we can start celebrating.

Immediate targets for the wave from 2539 trough are 3189 and 3287. To put it in simpler terms, one leg of the up-move from the 2539 trough could be drawing to a close. But a strong move above 3287 will imply a wave extension that makes the index can race towards 3326 or 3450. The 200-day moving average also present at 3450 will be the level that most participants will aim for on a strong move above 3287.

Supports for the week are at 2970 and 2820. Short-term traders can hold their longs as long as Nifty trades above the first support.

Global Cues

Global equities steadied themselves after a shaky start. Key short-term resistance for DJIA is at 8100. Penetration of this level will take the index to the zone between 8800 and 9500. Conversely, if it turns hesitant at current levels, sideways move between 7500 and 8000 can ensue for a few weeks. — Lokeshwarri S.K.

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