Sensex (17,166.6)

One of the most boring weeks in recent history has just gone by with one somnolent session following another. The NMDC share issue did nothing to lift the mood as it limped its way to full subscription. The bulls and bears are evenly matched at this point and the narrowing range in stock price movement denotes that there will be a snap any moment now; something's gotta give.

Volumes were subdued in both the cash as well as the derivative segment as market participants await clarity on the market's next move. Index put call ratio has declined to 0.89 implying that many among the trading fraternity have squared up their short positions. Open interest too is continuing to pile higher. FIIs were net buyers in all sessions though their enthusiasm waned slightly in the later half of the week.

The Sensex wandered aimlessly in the band between 17,000 and 17,250 before ending the week 1 per cent higher. The series of small stars formed in the daily candlestick chart is an apt reflection of the indecisive state in the market. Oscillators in the daily chart continue to signal a buy but weekly momentum indicators are signalling caution.

The 10-week rate of change oscillator has declined in to the bearish zone. What is more disconcerting is the fact that this oscillator has been diverging negatively since last May implying that there is serious lack of momentum over a medium-term time frame.

Let us take a step backward and try to understand the way the index is moving over the medium-term time frame. A double zigzag pattern was completed in Sensex from the March 2009 low of 8,047 to the October 2009 peak. The momentum began deteriorating from the C wave of this pattern giving the impression of a broad-based sideways movement since August last year.

The movement since October last has multiple connotations. One of the counts is that of an X wave down to 15,330 followed by a flat formation. The minor c of this flat could now be unfolding that has the targets of 17,074 or 17,954. The pattern could, of course, turn in to a triangle or a double or triple three. That would result in the index moving sideways between 14,000 and 18,000 for few more months.

We are assuming that this sideways move is a terminal corrective wave that winds up the up-move since last March. However, a strong move above 18,500 will call for a revision of this view and will imply that the index will make an attempt at getting past 20,000 this year.

As far as the short-term view is concerned, the Sensex is moving sideways with a distinct positive bias. Another spurt higher towards 17,509, 17,790 or 17,967 is possible in the near-term. Investors can however expect plenty of turbulence as the index closes in on the 18,000 mark. Subsequent target is 18,373. Supports for the week ahead would be at 16,766, 16,635 or 16,367. Short-term investors can continue to buy in declines as long as it holds above 16,600.

Nifty (5,137)

The Nifty too was wedged in an extremely tight range last week and finally ended 48 points higher. The mildly positive bias to last week's trade implies that the index can make an attempt to rally towards 5,247 or 5,310 in the days ahead.

The going could get choppy as the index nears its yearly high. Supports for the week are 5,013, 4,973 and 4,898. Short-term traders can buy in declines as long as the index trades above 4,970.

For the medium-term, Nifty appears to be in a flat formation since last November (see explanation given for Sensex above). The minor c of this formation could be unfolding now that has the targets of 5,152 and 5,447. In other words, medium-term target on a strong close above 5,310 would be 5,447. Global equities took a step higher, but the rally was stunted in most European and Latin American benchmarks. CBOE volatility index held above 17.2 recorded on March 5 and rallied to 19.3 in the middle of the week.

But investors appear to have turned more sanguine towards the end of the week resulting in the volatility index closing at 17.6.

Asian benchmarks were relatively more gung-ho Indices such as Jakarta Composite, Karachi 100, KLSE Composite, Philippines Composite Index and so on recorded strong rallies that made them test their previous 2010 peaks.

The movement in the Dow was just as exasperating as the rest of the global benchmarks. It was the surge on Thursday that helped the index close the week with half per cent gain. The index is however closing in on its previous peak of 10730 formed on January 19. As indicated in our previous column, there can be some volatility as the index nears this level resulting in a sideways move between 9,800 and 10,800 for a few more months. Target on a move above 10,800 is 11,300.

— Lokeshwarri S.K.

(This article was published in the Business Line print edition dated March 14, 2010)
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