The Hindu Business Line : Index Outlook

The attempt to ignite a pre-budget rally was met with a rather lukewarm response last week. Though Sensex made a new all-time high of 14723.8, it ended the week with a marginal gain of 0.9 per cent. Our markets are showing maturity in not succumbing to the traditional trends such as pre-budget position building. It is to be seen if the markets can sustain this resolve over the next two weeks.

Though, there were pockets of activity, the market breadth languished last week. Both, the BSE Midcap Index and the BSE Smallcap Index lost a per cent each. Metals dragged the rest of the market lower. Volumes too were noticeably down. On the oscillators front, the ROC in the weekly and the monthly chart are diverging negatively and moving lower. This indicates that the markets are losing momentum over the longer time-frame.

The short-term trend, however, continues to be up. The correction seen on Thursday and Friday has not dented the short term uptrend significantly. We will stay with the assumption that the move from the low of 13316 is an impulse wave. This wave has the immediate target of 14889. A sideways move between 14850 and 14300 for a few sessions will pave the way for the next spurt to 15500.

Wave patterns and conventional trend following techniques point towards further upside to Sensex in the short term. What is concerning is the deteriorating breadth and momentum. We can expect some range bound moves next week between 14300 and 14800.

The resistance for Sensex next week would be at 14722 and then at 14900. The supports will be at 14303 and then 14045. Investors need not fret as long as Sensex stays above 14045.

Nifty (4187.4)

Nifty made an intra-week high of 4245 but the dip on Friday erased all the gains and made it close on a flat note. The support level to watch out for next week would be 4135. If Nifty sustains above this level next week, then the short-term outlook will stay positive.

A strong opening for the week can see Nifty rising to 4258 and then 4281. Considerable resistance will be encountered in the zone between 4280 and 4300. A breakout from this zone is required to take Nifty to the medium term target of 4372.

Traders can continue to buy in dips with a stop at 4120. However, no fresh longs should be initiated if Nifty falls below 4135.

Global Cues

Subdued trend was observed in most of the global equity markets last week. The markets that bucked this trend included Chile, Peru, Pakistan, Thailand, Mexico. This reiterates our view that global investors are fishing in riskier waters to keep their portfolio returns upbeat. The weakness towards the end of last week has not marred the short-term outlook in the Dow Jones Industrial Average yet. But, the bearish engulfing candle in the Nasdaq Composite Index points towards the beginning of the third leg of the correction that began on January 16.

Comex gold is nearing the intermediate resistance at $676. A breakout beyond this level will clear the way for a surge to the previous high of $730. Nymex crude prices touched a high of $60.8 on Friday. That is exactly 38.2 per cent retracement of the slide from $78.4. We need the crude prices to move strongly past $61 to make the short-term outlook positive.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

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