The Hindu Business Line : INDEX OUTLOOK

The three-month long wait came to an end last week with the Sensex finally scaling the 16,000 summit. But the retinue of investors, who were supposed to follow in its wake, scrambling to buy stocks, were missing. Market participants adopted a more mature and watchful attitude instead, resulting in a sedate 3.6 per cent weekly gain. There was plenty to lend support to equities last week including the benign stance of G-20 leaders and dollar weakness.

The shove that finally pushed Sensex past 16K came from foreign institutional investors. They pumped in close to Rs 3,000 crore last week after being on the back-foot over the last two months. Volumes were also good though breadth turned iffy towards the weekend. Derivative data however is flashing red as the open interest has moved above Rs 1 lakh crore and Nifty put call ratio is over 1.2 indicating that market is overbought at this stage.

Small and mid-cap stocks were edgy last week. BSE Smallcap Index has reached key long-term resistance at 7,264 and it will be interesting to see if it is able to move above this level. In other words, small-cap stocks could under-perform for a few weeks. BSE 500 too went on to a new 2009-peak last week. The trend in this index continues to be strong.

Despite the brouhaha over Sensex scaling 16,000 and Nifty rising above 4,800, the charts have not altered significantly last week. There is a clear lack of momentum over the daily and weekly time-frame while oscillators in the monthly chart have reached overbought levels.

Sensex is currently testing the outermost target for 2009 that was carried in our December 28, 2008 edition. It has been an incredible journey for the market so far and a lesson that the market can and will make the most fantastic moves. We will wait for another weekly close beyond 16,200 before revising the upper targets for this calendar.

If we extrapolate the move from the 13,219 trough, the targets for Sensex are 16,403 and then 17,467. If we consider the minor wave counts of the move from 8,047, the targets are 16,103 and then 17,370. As mentioned in our last column, there is a confluence of targets in the zone between 16,000 and 16,500. Since 61.8 per cent retracement of the down-move from January 2008 peak too occurs at 16,200, the zone where Sensex is currently poised is a critical long-term resistance.

But a strong move beyond 16,500 would take the index to the zone around 17,400. The medium-term trend would turn negative only on a close below 14,600.

The nervous trading witnessed over the last four sessions indicates that there can be a short-term decline before the index makes further progress. Supports for the week would be at 16,020, 15,770 and 15,360. Short-term traders can buy in declines as long as the first support holds. Upper targets for the week would be 16,430, 16,541 and 16,722.

Nifty (4,829.5)

Nifty went on to the intra-week peak of 4,889 before closing 149 points higher. If we consider the target of the third wave from 3,918 trough, the levels are 4,855 and then 5,166. As we have been reiterating, 61.8 per cent retracement of the previous decline gives us the resistance at 4,900 that can be a formidable hurdle in the near-term. In other words, the Nifty could struggle to move past 4,900 just yet. But if it does so, next target is 5,166.

The short-term trend in the index is up but a bout of selling can pull it lower to 4,740 or 4,680. Short-term traders can hold their longs as long as the index trades above the first support. Upper targets on a move above 4,900 are 4,952 and 5,052.

Global Cues

Global equity markets were in as good a shape as it can get towards the end of last week. Falling dollar and the resultant spike in commodity prices buoyed equities.

The small losses made in the previous week were recouped last week and most benchmark indices ended the week 3 to 4 per cent higher. Asian indices moved to the upper end of their trading ranges. Shanghai Composite closed 4.5 per cent higher, close to 3,000. Next targets for this index are 3,050 and 3,150. CBOE VIX declined to a new 2009 low indicating that investors are cheery and optimistic. The Dow has once more closed in on the resistance at 9,650. Third leg of the up-move from March lows gives the targets of 9,575 and then 10,476. The index is pausing close to the first target where the rally can terminate. However, if the rally continues, it can proceed towards the 10,500 that is also close to the 50 per cent Fibonacci retracement level of the decline from October 2007 highs. As mentioned before, the medium-term view for the index will stay positive as long as it holds above 9,000.

— Lokeshwarri S.K.

More Stories on : Stock Markets | Technical Analysis | Insight

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

Stories in this Section
Convert paper profits to the real thing

ICICI Pru Discovery: Invest

Power Trading Corporation: Buy

Pipavav Shipyard — IPO: Avoid

CHART FOCUS — PSL (Rs 171.7): Buy

Maruti Suzuki: Buy

Buying a car is more than just economics — Jan Miecznikowski

Indian Vs Global IT majors — Why premium may not be justified

Let the mouse paint your house

INDEX OUTLOOK — Stepping beyond 16,000

Equity investing: More a science than a gamble

PNB: Buy