The Hindu Business Line : Index Outlook: Market to hit the pause button

The speed with which the financial and equity market pulled back from half-way down an abyss to a position from where most market participants are eyeing a new peak, has been nothing short of miraculous. It is only fitting at this juncture to acknowledge the bold and swift though somewhat blundering actions of regulators across the globe that perpetrated this turnaround. Diwali week saw the Sensex once more rising above the 17,000 mark to close with 683 points gain.

Investors wanting to participate in the Diwali rally came back to the market as the week progressed resulting in a sharp surge in volumes towards the end of the week. Hectic activity was also witnessed in the derivative segment resulting in the open interest crossing the Rs 1-lakh-crore-mark again. Increase in open interest of stock futures is a cause for worry since it implies that retail investors are becoming active in the derivative segment of the market. FIIs once more turned gung-ho on the prospects of Indian equities last week.

There is little change in the daily momentum indicators. The 10-day rate of change oscillator continues to move nervously above the zero line. The negative divergence in the 10-week ROC also stays in place.

Though the Sensex did not rise to a new peak by Diwali as some had hoped, it has achieved our medium-term target of 17,467. Some volatility is in order as another five-wave sub-minor formation from August 19 low draws to a close. There can be a decline towards 16,650 or 16,420 in the days ahead as the index corrects some of its excesses.

But this can not be called the end of the medium-term up-trend. As mentioned before, a weekly close below 16,000 is needed to start a medium-term correction that prolongs for a few months. A sideways movement between 16,000 and 18,000 is the more likely scenario over the ensuing weeks as the intermediate-term up-trend etches its final moves.

Volatility will come to the fore once more in the week ahead as the index takes a much needed breather. Sensex can decline to 16,650 or 16,419. If the index holds above 16,600, it will mean that the bulls continue to call the shots in the short-term. If the index has a strong start on Tuesday, upward targets are 17,565 and 17,987.

Nifty (5,141.8)

It was a strong week for the Nifty as the index closed 197 points higher. The high of 5,176 recorded in the Muhurat session can however turn out to be a short-term peak for the index and it can slide lower towards 5,033, 4,945 or 4,862 in the weeks ahead. Fresh shorts can be initiated on a decline below the first target. The index is not expected to rise beyond 5,176 or 5,223 in the short-term.

Since we are expecting one leg of the up-trend that began at the August 19 low to end here, the correction that follows can prolong for a few weeks. But the intermediate-term up-trend from March lows is still intact and a weekly decline below 4,700 is needed to signal the end of this up-trend.

A sideways move between 4,700 and 5,300 appears likely over the ensuing weeks before the index makes its next long-term move.

Global Cues

Dow hitting the 10,000 mark dominated the proceedings in the global arena. But the week ended on a cautious note as disappointing earnings from some companies pulled indices lower. Most benchmarks indices however closed with gains for the week. CBOE volatility index that had reached 30 a couple of weeks ago recorded a 13-month low last week that investor mood is at its complacent best. Next target for this index is the August 2008 low of 18.8.

The Dow became a trifle edgy close to the 10,000 mark. As we have been reiterating, there is short-term resistance between 10000 and 10,100. If this zone is crossed, next target zone lies between 10350 and 10500. Close below 9400 is needed to make the medium-term view negative again for the Dow. Key short-term support to watch out for is at 9830.

Reuters CRB index moved beyond the key resistance at 445 last week. This paves the way for a rally to 480 or 518. Commodity driven markets such as Brazil, Mexico, Russia and so on had a stellar week. Thailand’s SET was the under-performer last week on concerns regarding the health of its King Bhumiphol Adulyadej. — Lokeshwarri S.K.

More Stories on : Stock Markets | Technical Analysis | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Don’t lock into any long-term debt now

Chart focus - Elecon Engineering (Rs 101.2): Buy

Templeton India Equity Income Fund: Invest

Canara Robeco Infrastructure: Hold

Jindal Steel and Power: Hold

Clutch Auto: Buy

TTK Prestige: Buy

Index Outlook: Market to hit the pause button