The Hindu Business Line : Index Outlook

The Union Budget for 2007 has turned out to be a non-event as far as stock markets are concerned. It was the tremors emanating out of China that made the Indian equities lose their footing and fall with a thud last week. The post-budget recovery lacks conviction and we are looking down the barrel.

The fall in Nifty put call ratio to below 1 denotes reduction in short positions in the market and that is not good news.

Nifty March futures ruling at a discount of 28 points underlines the prevailing negative sentiment.

We had hoped that this intermediate term correction would be stemmed at the minimum target of 13268 on the Budget day.

But the Budget has let us down and Sensex is now poised precariously at 12871, that happens to be the intermediate term trend deciding level. The next important support exists at 12594, where the 200-day moving average is positioned.

A quick look at the larger wave counts is warranted at this stage. We are in the fifth wave of the long-term bull market that started in 2003.

The point that needs to be determined is, if the move that ended at 14723 is the first minor of the fifth or the entire fifth wave. Needless to say that the second assumption denotes the beginning of a long-term consolidation phase. But the long-term structural bull market will be threatened only if Sensex has a monthly close below 11600.

A study of the charts of some of the pivotals in Sensex such as SBI, ACC, Tata Steel points towards the completion of the move that began from the 2003 lows. Similar trend is being observed in other global equity indices too.

It would be best to stick to the sidelines till clarity on the long-term trend emerges.

Wave patterns on the daily chart suggest that Sensex can move lower to 12797, 12516 or 12194 in the short term. Short-term rallies will face resistance at 13441 and then 13800. Fresh purchases should be made only if Sensex rallies above 13800.

Nifty (3726.7)

Nifty too is on the brink! The index managed to close above the trend decider level of 3723 but the short-term outlook is negative.

Nifty can move lower to 3684, 3601 and then 3505 in the short term.

The 200-day moving average positioned at 3659 will be an important support to watch out for. Short-term rallies will face resistance at 3858 and then 3972.

Inability to rally above 3858 will be a cue for traders to initiate fresh shorts. Fresh longs should be initiated only if Nifty rallies above 3972.

Global Cues

The much-awaited correction in the global equity markets started last week. The giant engulfing candles in the weekly chart of most global equity indices are signalling that the slide can continue for few more weeks.

We will, however, reserve our judgement on whether this is a long-term trend reversal, till we see the action that unfolds over the next couple of weeks.

Nymex light crude for April delivery is consolidating between $61 and $62 and looking quite strong. A breakout to $64 level seems imminent in the short term.

Lokeshwarri S. K.

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