The Hindu Business Line : Index Outlook

The movement of Sensex last week drives home the undeniable truth that stock markets are not for the faint-hearted. Investors were buffeted between hope and despair as Sensex made its way over a rocky terrain, hurtling down one day and soaring up the next. At the end of the week, we are back to where we had started from, having made no headway in any direction.

The background indicators such as market breadth and volume show that there is no genuine buying emerging at lower levels. Nifty put call ratio dipping below 1 signifies that shorts are getting covered at every fall. This is preventing a sustained rally backed by short covering.

Sensex gave every one a scare by closing below 12500 last Monday. But it has stabilised since then and a short-term recovery is currently underway. The oscillators in the daily chart are giving tentative buy signals. But the 10-week ROC has dipped in to the negative zone and the 14-week RSI reading is 44. This indicates that the downward move can continue further.

The wave counts for the downward move from 14723 indicate that Sensex can oscillate in a band between 12200 and 13800 for a few sessions before the intermediate term outlook becomes clear. A close past 13800 is required to signal that the long-term uptrend has resumed.

Fall below 12200 will mean that Sensex is heading for the next intermediate term support at 11750.

For the short term, Sensex will struggle to rise past 13250. Reversal below 13250 will drag the index lower towards 12583, 12318 and then 12236. A rally past 13250 can see Sensex rising higher to 13539.

The outlook was dire at the end of the budget week. But some semblance of stability is returning to the markets now.

Investors who wish to buy for the long term can start cherry picking. Investors with a shorter time-frame can stick to the sidelines and wait for the volatility to subside.

Nifty (3718)

Nifty too moved up and down in a 250-point band last week before ending almost unchanged from the previous week's close. The medium term range that we envisage for Nifty is between 3500 and 4000.

A breakout beyond either boundary is required to determine the intermediate term trend. Fall below 3500 will take the Nifty to its next intermediate term support at 3404.

For the short term, Nifty will face difficulty in rising above 3826. Failure to rally past this level can see Nifty slipping lower to 3633 or 3531 over the week.

Traders can shorten Nifty on rallies with a stop at 3850. A rally past this will take the index to 3928.

Global Cues

Markets across the globe recovered some lost ground during the course of the week. But the medium term correction that set off towards the end of February continues to be in place.

In other words, the recovery needs to gain strength and indices need to rally higher to make the medium term trend positive once more.

Comex gold tried to stabilise at lower levels. But unless it rallies above $670, it can move lower to $622 or $601 levels in the short term.

The intermediate term rally that began in crude oil from the low made on January 18 is gaining strength with each passing day. A rally to $64 now looks imminent.

Lokeshwarri S.K.

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