Sensex (17773)
Wednesday’s session was reminiscent of the frenzied days in the first quarter of 1992, when the entire financial community was engulfed by a feeling of euphoria. On this occasion, though the voice of reason prevailed towards the weekend, indicators suggest that the stampede of the bull may not be arrested just yet.
Turnover zoomed to record levels on Wednesday; as traders rushing in to join the bull band-wagon were ruthlessly stopped. FII cash inflows of over $700 million on that day imply that the recovery was largely fuelled by external investors. They have pumped in $2 billion in the last four trading sessions alone! However, derivative data indicates that foreign investors are taking adequate precautions by hedging their cash market positions through futures and options.
The Sensex moved past the near-term resistance at 17500 on Wednesday; and stopped a whisker short of the next milestone at 18000. The strength and ferocity of the Sensex move indicates that this is the third wave from the June 2006 trough of 8800. The third minor of the third is generally the swiftest, most profitable and leaves everyone gasping for breath. That probably describes the current situation perfectly. This wave has a plausible target at 20425. A strong third wave that unfurls to its utmost potential can take the benchmark beyond the afore-mentioned target.
The near term outlook for the Sensex stays positive though sharp intra-day swings can not be ruled out. The index can rise to 18096, 18468 or 18882 next week. A halt in the zone between 18400 and 18800 can usher in a medium term correction that can make the index fall to 17225 or 17000. The medium term outlook will turn negative only on a fall below 17000. Traders can buy in corrections as long the Sensex stays above 17200.
The main grudge that many are bearing at this juncture has to do with the swiftness of the rally. A sedate climb to 20000 by the end of 2008 would have been welcomed by all but a dash to the same level before the end of this year would cause considerable consternation. The way to tackle this phase would be to book profits on stocks that are overstretched and to reduce the exposure to the stock market as the index sears ahead. Having done that, investors should be prepared to stay on the sidelines for a few months to await the next buying opportunity at considerably lower levels.
Nifty (5185.8)The wave counts are always easy when the market is in an impulse move. We just need to set targets higher and higher, and the market would be there in no time at all.
Nifty moved past our outermost short-term target at 5176 to record an intra week top at 5261. Our medium term target stays at 5364 as indicated last week.
The upper targets for the week ahead are at 5230, 5295 and then 5364. A five-wave move could complete around 5350 in the Nifty and we could see a medium term correction thereafter. The magnitude of the correction would indicate the ability of the index to move higher towards 5564. The supports for the week ahead would be at 5007 and then 4946. Traders can continue to buy in corrections as long as the index trades above 5000.
Global CuesThe Dow Jones moved past 14000 to a new high at 14124, as anticipated in our last column. Another weekly close past 14000 would mean that the structural bull market has resumed after the deep cut in August. Since this move would be the next leg of the up-move from the October 2005 trough, the DJIA could be heading for 14500 in the medium term. Though all the Asian indices put up a strong show last week, it is the Hang Seng that was the show-stopper; for once eclipsing the Shanghai Composite index. Hang Seng has already gained 43 per cent since its August 17 trough!
Comex gold eased after recording a high of $747. This correction can make the commodity fall to $705, after which it can continue its up-move. Nymex crude is consolidating between $78 and $84. An upward break-out is imminent in the near term that can take the commodity past $90.