The Hindu Business Line : Index Outlook: Volatility to the fore again

Those of us who have been deriding the market for its comatose moves over the past fortnight had our fill of action in the last two sessions. Stock prices that had reversed lower on the derivative expiry day began hurtling downward on Friday as the Dubai debt imbroglio surfaced. But just when the 16,000 buttress was on the verge of being shattered, Sensex turned around dramatically reducing the weekly loss to a mere 2 per cent.

The sharp plunge towards the end of the week has turned the short-term trend negative. Daily oscillators are beginning to show early signs of stress. The 10-day rate of change (ROC) oscillator has dipped slightly in to negative zone while the 14-day relative strength index has moved to a value of 47. These levels imply that the short-term outlook is beginning to turn negative.

What is more worrying is the 10-week ROC hovering below the zero line after prolonged negative divergence. We will however wait for this oscillator to move deeper in to the negative zone before calling a medium-term reversal.

Sensex is still poised half-way up the trading range of 15,000 and 18,000 that we are envisaging for a few more weeks. There are so many ifs and buts at this stage that both the bulls as well as the bears are likely to find the going difficult. In other words, the index can move in either direction in the near-term. Here are a few pointers to help investors in the week ahead,

Any attempted rally will face resistance at 16,877 and 17,290. Failure to move beyond the first resistance will mean that the down-move will resume to drag Sensex down to 16,200 or 16,080.

Short-term outlook will turn negative only on a close below the second support and this would pave the way for the decline extending to 15,950 or 15,127.

Target on a move above 17,290 is 17,420 and 17,490.

The zone between 16,000 and 16,200 remains a very important psychological support and the medium-term trend will be under the threat of reversing only on a weekly close below this zone. In such an event, the first medium-term target for Sensex will be the zone between 13,800 and 14,000 where the 200-day moving average is positioned.

Nifty (4,941.7)

Nifty recorded an intra-week peak of 5,138 before plunging to 4,806 on Friday. The index is trying to move higher since Friday afternoon. This move will face resistance at 4,980 and 5,000. Inability to move beyond 5,000 in the early part of the week will result in the index declining to 4,800 or 4,662 in the days ahead.

However a strong move above 5,000 will take the index to 5,138 or 5,176 in the near-term. Our medium-term view remains unaltered and the index is likely move between 4,400 and 5,300 is possible for few more weeks.

Global Cues

Global benchmarks did not reflect the upheaval witnessed in our equity market towards the end of last week. Most developed market indices closed on a flat note while some indices even managed a positive weekly close. It is, however, not right to say that global investors were unfazed by the goings on in Dubai for the CBOE volatility index that was on the verge of declining below 20, was yanked sharply higher on Friday to end the day 21 per cent higher amply reflecting the nervousness among the trading fraternity.

The Dow recorded an intra-week peak at 10,495 on Monday that is just one point short of the immediate target for the third leg from the March low of 6,469 that we have been indicating. The index has also retraced 50 per cent of the previous up-move and a diagonal triangle appears to have been completed at the recent peak of 10,495.

In other words, the Dow is ready for a correction but this could be postponed until early next year and the index could move in a sideways range for the rest of this year. The short-term trend in the index is however positive and a close below 9,960 is needed to alter this view.

Some Asian indices such as Hang Seng, Seoul Composite, Jakarta Composite, Shanghai Composite and so on have received deep cuts last week and could have resumed their medium term downtrends. — Lokeshwarri S.K.

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