The Hindu Business Line : Index Outlook

Markets are promising us some edge-of-the seat excitement in the next few sessions. We have the expiry of the February derivative contracts this Thursday followed by the Union Budget presentation three sessions later.

Though deep sell offs were seen in highly traded stocks in the first two days of last week, we managed to end on a cheery, `we are on invincible' note.

It is only to be hoped that the mid-week fall of over 7 per cent in the BSE Smallcap and BSE Midcap Index last week will make the market's cheer brigade tone down their refrain. This false sense of complacency is making the leveraged positions pile up, making the markets vulnerable in the short term. The fall in Nifty put call ratio to 1.32 is a reflection of this optimism.

Volume in the cash segment was moderate. But the derivative segment saw a jump to an average daily traded turnover of Rs 42,000 crore last week against an average of Rs 29,000 crore recorded since the beginning of February. FII activity in the cash and the derivatives segment does not display any overt reversal of sentiment on their part. The mutual fund fraternity, however, continued to make sales.

The movement of Sensex last week has thrown up a plethora of new wave counts our way. We have not discarded the possibility of a fresh impulse from the low of 13316 as the correction last week stopped at 13805. But the move from 12800 low is increasingly mimicking a diagonal triangle formation. The fifth wave of this triangle could have begun last Wednesday and it can take Sensex to yet another new high. The medium-term outlook will stay positive till Sensex stays above last week's low of 13805. Our short-term outlook is neutral.

The oscillators in the daily chart have turned up but have not given a buy signal yet. We need Sensex to close above 14,400 on Monday to make the short- term outlook positive. A smart move past 14,400 will take Sensex to 14,674 and then the previous high of 14,722. If Sensex fails to close above 14,400 next week, we can see another slide to 13,804 and then 13,454.

Caution is advised for investors as well as traders at this juncture as Sensex is in the process of completing the move that began in August 2006. Though there can be a spurt to 15000 or 15200 in the short term, it would be advisable to move partly in to cash. And please do cut down those leveraged positions.

Nifty (4146.2)

Nifty fell way below our support to hit an intra week low of 3965 last week. As explained above, the trading day on Monday will set the tone for the rest of the week. A firm close above 4180 on Monday should be the cue for playing long again. The index can then move higher to 4214 and 4245.

In case, Nifty fails to rise above 4180 next week, we can expect another steep slide to 4006 and then to 3900.

Chart Focus Follow-up:

Bharati Shipyard reversed above our support at Rs 350 last week. A consolidation in the band between Rs 350 and Rs 430 would be the ideal launch pad for the next leg of the long-term up-move. Investors can hold this stock with a stop at Rs 318.

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