The Hindu Business Line : Index Outlook

Activity came to a standstill on the stock markets last week as the countdown to Infosys' earnings announcement began. The company's management, well aware of the significance placed by the markets on their guidance, did all they could to assuage the fears relating to an impending slow down in the earnings of IT companies in India. The relief rally that followed reveals the finesse with which this task was executed.

Optimism ruled high as Sensex reached the upper limit of its current trading band. The Fractal theory does not manifest itself in the market patterns alone, it is reflected in the investor sentiment too. Volumes were brisk on Friday. Open interest in the derivative segment moved above Rs 50,000 crore.

Nifty put-call ratio is above 1 again indicating that hedging is being resorted to as Sensex climbs higher. BSE Midcap and BSE Smallcap Indices livened up after four weeks of stagnation to record 5 per cent gains. The rally needs to continue for one more week to signal a medium term reversal in these indices.

There is no need to alter our intermediate term outlook for Sensex yet. It seems to be moving in a sideways move prior to a breakout on the lower side. But the docility with which Sensex has been adhering to this script makes us fear that it could be readying to spring a surprise on us. We will, however, stick to this count until a firm close above 13821 is recorded.

Sensex moved higher last week in line with our expectation. The flat formation is on course. The C wave of the flat has the targets of 13495 and then 13903. Caution would come in handy in the 100-point band between 13450 and 13550. A regular flat pattern can terminate in this band and a move towards 12700 can follow.

A move beyond 13550 is needed to take Sensex to the intermediate term target of Rs 13903. The supports for the week are at 12999 and then 12738. Traders can play long with tight stops till Sensex trades above 12999.

Nifty (3917.3)

Nifty has managed to close above its 50- day moving average this week though Sensex hasn't. This short-term rally can extend and take Nifty to 3953. We can expect considerable resistance in the band around 3950 and aggressive traders can go short if Nifty struggles to cross this level, with tight stops at 3975.

A firm breakout beyond 3950 will take Nifty towards the next medium term target of 4070.

The supports this week would be at 3806 and then at 3715. No fresh long positions should be initiated should there be a fall below 3800.

Global Cues

Global equity markets had a quiet week. The indices that are rising (Peru Lima General Index, Shanghai Composite Index) continued to rise and those meandering sideways (DJIA, Nasdaq, Nikkei, Russia Moscow Times, Sri Lanka, Switzerland etc.) kept up their crawl. Some of the Asian markets such as Karachi 100 Index, KLSE Composite Index, Seoul Composite Index etc. revved up last week and moved sharply higher. This does look like the resumption of the long-term bull market that is in place since 2003.

Crude prices were supported above $61 on fears relating a shortage in gasoline supply ahead of the peak summer demand. The short-term outlook for crude stays positive as long as it stays above $60. Copper is continuing its dream run and seems headed towards the May 2006 peak.

More Stories on : Stock Markets | Technical Analysis | Outlook

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Grading of IPOs

Mutual funds: When risk enters the performance equation

Index Outlook