Market Index Outlook

The Indian markets suddenly caved in last Monday, catching most participants unawares. The disquieting aspect of last week’s trade was the weakness witnessed in the mid- and small-cap stocks. Both the BSE Mid-cap and Small-cap indices lost around 4 per cent as investors opted to take some money off the table prior to the year-end holiday season.

With just three days to go for the expiry of the December contracts in the derivative segment, volatility is expected to rule high. The large build-up in the open interest will exert downward pressure on stock prices. Liquidity too is far from robust; FIIs pulled out close to $1 billion in cash segment in the week gone by.

The near-term outlook for the Sensex is currently negative. The 14-day relative strength index at 45, and the 10-day rate of change oscillator slipping into negative territory imply that the down-move can continue in the near term. The weekly momentum indicators too corroborate this view. But short-term investors can take heart from the fact that the Sensex is yet to breach the support around 19000. An emphatic move below this level is needed to drag the index lower towards 18500 or 18182 in the near-term.

Our medium term outlook for the index stays positive. The Sensex is consolidating in a band between 18000 and 20500 since October 30. This sideways move is likely to be followed by a break-out to 20942 or 22627. This view will hold good even if the index were to fall to 17800. However, a close below this level will imply that a correction of a larger degree could be in progress.

The bulls are likely to marshal their resources and strike back early next week. The Sensex could move higher to 19500 or 19882. But a downward reversal is possible from either of these two levels. Failure to move above the first resistance would denote that the index would slide down 19067 or 18503. The support zone around 19000 would be effective this week as well.

Nifty (5766.5)

Nifty moved lower as indicated in this column last week. Though it breached the short-term support at 5834, the index was able to pull itself higher from the next support at 5700. The zone between 5650 and 5750 will be an important support level in the week ahead.

The index can attempt to move higher to 5871 or 5992 early next week. Fresh short positions can be initiated if the index fails to get past the first resistance. The downward targets would then to 5670 and then 5557. Our medium term outlook stays unaltered. The Nifty could move between 5400 and 6200 for a few weeks before the index moves higher to 6262 or 6795.

Global Cues

The Dow Jones Industrial Average gave everyone a scare towards the middle of last week when it dipped below the long-term 200-day moving average line. But the situation was salvaged to some extent by Friday’s rally. A move beyond 13500 by the index next week will ensure that equities enter the New Year with good cheer. The tech-heavy Nasdaq Composite Index spear-headed the surge last week with a 5 per cent recovery from the week’s lowest point. Asian equities remained steady, though the intermediate term trend continues to be down in most Asian markets.

Base metals such as aluminium and copper stayed in a weak mode. Comex gold is consolidating above the 50 day moving average. The outlook for this metal stays positive as long as it holds above $770

Index Outlook

Sensex (19698.3)

The bulls, rejuvenated by the Diwali break, came thundering back last week to yank the Sensex back from a deeper correction. The Indian markets displayed remarkable resilience last week. Weak industrial production numbers for September and quaking global markets did little to dampen the upbeat mood on our bourses.

The frenzy has now percolated down to the mid- and small-cap stocks. Both the BSE mid-cap as well as the BSE small-cap indices recorded successive life highs in the last three sessions of the week. Open interest in the derivatives segment has crossed Rs 1,00,000 crore again. Stock futures comprise more than half of this build-up; denoting that the outstanding contracts could be predominantly speculative in nature.

But the up trend in the Indian markets is not showing any signs of flagging yet. Though Sensex dipped below 18800 support on Monday, it recovered from the next support at 18340, thus retaining the positive outlook for the short-term.

The move that began from 17171 trough on October 22 can now extend further, giving the medium term target of 21400 to the Sensex. The positive medium term view will be negated only on a fall below 18300.

The labelling of the waves has become easier after the assertion of the short-term up trend last week. The most obvious count is that the Sensex is charting the fifth part of the wave that commenced from the March trough at 12316. The outermost target for this wave is 20942. But a fifth wave extension can take the wave beyond the target mentioned above.

The near term outlook for the Sensex is positive and the index can move higher to 20228 and then 20495 next week.

Some nervousness can be expected in the region around 20000. But the outlook for the week will turn negative only if the index falls below 18900.

Though the technical charts continue to be gung-ho, investors need to keep a balanced head on their shoulders in this market. The situation is getting close to the one seen in April 2006 with retail investors getting hyper-active in futures segment, muted FII inflows and runaway rallies in mid and small cap stocks. Leveraged positions are a definite no-no. Stocks witnessing steep run-ups are best left alone.

Nifty (5906.2)

Though Nifty dipped below 5600 briefly on Monday, the recovery on the same day has helped to avert a medium term down trend in the index.

The Nifty has now moved close to the 6000 mark once more. The third wave of the move from 5070 gives the medium term targets of 6059 and then 6419. Once the index moves past its previous high, another sharp surge is possible.

The short-term outlook for the index would stay positive as long as Nifty remains above 5664. If 5800 holds in the early part of next week, Nifty can move up to 6119 and then 6307 in the near-term.

However, watch out for bouts of profit booking in the band between 6000 and 6050.

Global Cues

The US markets attempted a recovery on Tuesday, but lack of follow-up buying made the indices slide down again towards the weekend. The Dow Jones Industrial Average has closed below the long-term 200 day moving average for yet another week.

Though further slide is anticipated in the short-term, the medium term range for DJIA is between 12500 and 14000. The Nasdaq Composite Index is also weak from a near term perspective.

Interestingly, the Hang Seng Index and Shanghai Composite Index that have been accompanying the Sensex in the mad hurtle upward have corrected more than 15 per cent over the last three weeks.

Some of the other Asian indices in Thailand, Taiwan, Singapore and Pakistan are also correcting in earnest. The Nikkei is the fore-runner in giving early indications that the four-year bull run from the 2003 could be nearing completion.

Via Business line

Index Outlook

Sensex (18907.6)

The razzle-dazzle of Diwali left Dalal Street untouched this year as the Sensex recorded a negative weekly close; the second in the last three months. This sulky mood is a trifle worrisome. But we need to remember that the Sensex has gained 46 per cent in the last three months. One can’t blame the investors for taking some of those gains off the table to spend on Diwali revelry.

Volumes petered off towards the end of the week reflecting investors’ disinterest. FIIs too have taken their foot off the accelerator; turning net sellers this month in both cash as well as derivative segment.

There are disturbing signals emanating from the derivative segment. Despite the open interest nudging Rs 1,00,000 crore mark, the Nifty put call ratio is extremely low at around 1.1. This could be due to excessive optimism or due to the absence of external participants taking directional calls or hedging at higher levels. Whatever be the cause, our markets are rendered vulnerable without the protective cover of these short positions.

The gentle slide witnessed last week made the Sensex fall to an intra week low of 18737, below our trend deciding level of 19066. The first two session of next week are crucial for determining the short-term trend. The bulls need to stage a bounce from these levels if the momentum has to be maintained. A fall below 18700 would mean that the Sensex is slipping in to a medium-term down trend.

The momentum indicators too signal that the Sensex needs to fall a little further to turn the medium-term trend downwards. A bounce from current levels will result in the resumption of the exhilarating rally in the index.

It is too early to label the correction that began from the peak at 20238. The magnitude and the time of this move will help us decide if the Sensex is correcting the move from 13780 or the move that began much earlier, at 12316. Either way, the Sensex is expected to remain volatile within the 17000 to 22000 range in the medium term as the last phase of the move from June 2006 completes itself.

Investors ought to watch out for the support in the band between 18800 and 19100 next week. A reversal from this band will make the Sensex rally towards 19310 and then 19664. Traders should wait for a move beyond the second resistance before making fresh purchases. A fall below 18800 will mean that the Sensex is heading towards 18342 and then 17861.

To sum up, though the short-term trend is down, the outlook will turn explicitly negative only when the Sensex falls below 18700. But investors are advised to stay on the sidelines and desist from making fresh purchases until index’ trajectory becomes apparent. It is imperative to reduce positions in stock futures as the derivative segment is getting overheated.

Nifty (5663.2)

Nifty too drifted lower to an intra-week low of 5614. The short-term support indicated last week, at 5664, has not been breached convincingly. So the short-term outlook for the index stays positive. A bounce from the support band between 5600 and 5650 can make the Nifty rise higher to 5766 or 5860 next week.

Traders can initiate short positions if the Nifty fails to rise above the first resistance. Our medium term range for the Nifty is between 5000 and 6500. Fall below 5600 can make the Nifty drift lower towards the zone between 5050 and 5150 in the medium term. Swing traders can watch out for buying opportunity in this band.

Global Cues It was a defining week for the Dow Jones Industrial Average. The 4 per cent fall in the index has turned the medium-term trend downward. It is now obvious that the DJIA is charting the third leg of the correction that began in August. That brings the support at 12500 to the fore again. Fall below this level would mean that a more serious correction is in progress. The Nasdaq Composite Index launched in to a medium-term down trend last week. Other global markets too witnessed some profit booking. CBOE VIX index is near a two-month high indicating the resurfacing of the fears that had pulled the markets lower in August

Index Outlook

Sensex (17559.9)

Investors in the Indian stock markets were subjected to a horrendous week caused by the flip-flop statements emanating from the governing authorities. If the intention of our policymakers is to arrest the rally in stocks, then why turn turtle at the first sign of a crash and issue ‘assuaging’ statements that only add to the confusion?

Despite the wild gyrations in the Sensex last week, our medium term view is unaffected. We had expected the Sensex to consolidate in the band between 17000 and 19000 for a few weeks before the uptrend resumes. The Sensex did not stray too far from this band last week. Our medium term trend deciding level of 16910 has also not been breached yet. We move the medium term support a little lower to 16550 now. The Sensex is not expected to fall below this level in the medium term. However, if it does, then the next target would be 15851.

As per e-wave counts, the sharp falls and recoveries of last week could be the fourth and fifth wave from the 12316. Completion of an impulse move from 12316 will usher in a fourth wave of a larger degree that can keep the index oscillating wildly in the band between 16550 and 20000.

That does not sound so alarming. But the need for caution stems from the fact that the rapid increase in the Sensex over the last two months has brought the index very close to its long-term targets. The second target for the fifth wave from 2003 low falls at 20031. We have almost achieved that level. What follows now can be the final stages of the bull market that can be intensely volatile.

For the week ahead, the Sensex would get support from the band between 17200 and 17100. A bounce from these levels will take the index to 17817, 17980 or 18445. A rally above the third resistance will take the Sensex to a new high again. Fall below 17100 will make the Sensex fall towards 16554. Both traders as well as investors are advised to stay out of the markets until the volatility subsides. Use rallies to pare your short-term positions in stocks.

Nifty (5215.3)

Nifty achieved our medium term target of 5739 in the early part of last week before crashing to an intra week low of 5102.

The Nifty has medium term support at 5087 and then at 4910. The medium term outlook for the index will turn negative only if it falls below 4910. The preferred view is a sideways move between 4900 and 5800 for a few weeks before the next wave up unfolds. But a move below 4900 will take the Nifty to 4400.

For the week ahead, supports will be at 5070 and then at 4910. If these supports hold, the index can rally higher to 5291, 5343 or 5493.

Global Cues

After the blow-off rally in the equities, it is the turn of crude now. Nymex crude prices rising above $90 on Friday has caused considerable consternation among the investor community that is now re-working the implications of the crude prices at the three-figure mark. As per E-wave counts, Nymex crude is currently charting the fifth wave of the move that commenced in 1998. The last leg of this wave has the minimum target of $127. The near term targets are $94 and then $103. The ascent in crude will continue as long as it remains above $84.

Friday’s crash in US markets has wreaked havoc with the medium term outlook for the Dow Jones Industrial average. The index could fall further towards 13100 over the next two weeks. But a fall below the August low of 12500 is needed to signal that the long-term trend has reversed in this index. The S&P 500 too is signalling the commencement of a medium term correction though the Nasdaq is relatively unaffected.

Index Outlook

Sensex (18418)

It has been a good beginning to the festival season with the Indian markets swirling to the Dandiya beat despite the discordant note struck by our political leaders. The corrections that ventured to rear their heads were trampled underneath as the Sensex danced its way to another strong weekly close.

Turnover was spectacular last week though breadth was indifferent. The mid- and small-cap stocks had little to do in last week’s blitzkrieg that was largely led by the large-cap stocks. FIIs continued to reiterate their confidence in our markets through massive inflows.

The awe-inspiring rallies witnessed last Tuesday and the preceding Wednesday has made the bulls too complacent. This is reflected in the derivatives open interest that is nearing the Rs 1,00,000 crore-mark and the low Nifty put call ratio. But the stock market is a place where it pays to be paranoid, especially if the investment horizon is short-term.

The Sensex shed some weight on Friday. But the magnitude of the preceding rally makes this dip pretty insignificant, even from a short-term perspective. However, as indicated last week, a downward reversal around 18,800 can usher in a medium-term correction in the Sensex. This is because a five-wave move from the 13780 trough could end at this level. The correction of this move can make the index consolidate in the band between 17000 and 19000 for a few weeks before the index has a shy at the 20K mark. The medium term outlook stays positive as long as the index stays above 16900.

But the Sensex is in such an aggressive mood that we need to be prepared for wave extensions that prevent a deep correction.

If the Sensex fails to penetrate 17880 next week, it would mean that the index would continue to blaze ahead, without any respite, towards our medium term target of 20425.

Momentum indicators point towards an easing-off next week to 18249 or 17881. A reversal from either of these levels would be a buying opportunity for short-term traders. Move below 17881 will propel the Sensex to 17287 or 16910. The upper targets in the week ahead are at 18844, 19298 and then 19893. Investors should desist from making fresh purchases at these levels, long-term or otherwise. Traders can buy in corrections, with tight stop losses.

Nifty (5428.2)

Nifty moved way above our weekly target of 5364 last week to record an intra week high of 5549; very close to our medium term target of 5564.

The five-wave move from 4002 could have been completed at this peak and we can now have a sideways consolidation between 4950 and 5600 for a few weeks before the index makes an attempt to rally to the next medium term target of 5739.

If the Nifty remains above 5200 this week, it may reach our medium term target sooner than expected.

We expect the index to drift lower to 5339, 5210 or 5000 next week.

The medium term outlook will turn negative only if the index falls below 4950. Upper targets for the week are 5549 and then 5692.

Global Cues

Global equities recorded a quiet and uneventful week. The Dow Jones Industrial Average moved sideways above the 14000 mark.

A minor correction to the support band between 13750 and 13800 would be the ideal launch pad for the next spurt upwards.

FTSE put on a strong show, dashing close to its July peak. Other stunners of last week were the Jakarta Composite Index, Shanghai Composite, Karachi 100 and Thailand SET. Just goes to show that Asia remains the favourite destination for foreign fund flows.

Comex copper is consolidating around the intermediate term resistance at $380. But a breakout past the previous peak seems imminent.

Nymex crude too has moved close to the upper boundary of its current range. An upward break-out to $88 or $94 is on the cards in the short-term

Via BL

Index Outlook

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 Cues

The 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.

Index Outlook

Sensex (15603.8)

The cacophony in conjecturing the various ways in which the Federal Reserve can act, made many among the market participants retreat to the fence last week. Profit booking near intra-day highs checked the up-moves in the Sensex while short covering in derivative segment prevented a sharp slide. The index finally ended the week on a flat note.

Traders busied themselves with the small-cap stocks and that made the market breadth positive. The BSE small-cap index was the strongest performer last week and is currently poised 2.6 per cent above its July peak. The broader indices such as the BSE 500 and BSE 200 too seem inclined to move higher. FIIs have reversed their stance in September and have already infused $1 billion in cash this month.

The Sensex did a commendable job of holding steady despite being buffeted by a host of negative tidings last week. But the momentum has slowed down significantly due to the protracted sideways move recorded over the last two weeks. Since corrections can either be shallow and long-drawn or deep and short-lived, let us hope that the correction this time around belongs to the former category.

The wave counts have not altered this week. The move from the 13780 trough could have one more leg upwards that can take the Sensex to 16025 or 16307. But the index can fluctuate in the range between 15300 and 15850 for a few more sessions before a break-out occurs. A fall below 15200 is required to negate the positive outlook for the short-term.

Though the short-term outlook is positive, medium and long-term investors need to exercise caution as the zone between 16000 and 16400 is a potent long-term resistance.

With the Sensex positioned just a stone’s throw away from recording a new high, excitement is running high. The movement next week could stay choppy with the Sensex moving in a band between 15350 and 15900. Move beyond the upper boundary would take the Sensex to the next milestone at 16025. Supports below 15350 are at 15211 and then 15043.

Nifty (4518)

The daily candle-stick chart of the Nifty last week has a plethora of bearish patterns, a hanging man, followed by a grave-stone doji and two shooting stars. If that hasn’t rattled traders, nothing else will. The Nifty can move around in the band between 4450 and 4650 next week. A dip lower to 4450 or 4408 is possible in the early part of the week. A reversal above 4400 would provide good buying opportunity for traders.

The upper targets for the week are 4582 and then 4636. Move beyond the second target can propel the index to 4716. The outlook for the short term stays positive as long as the index stays above 4360. Support below is at 4223.

Global Cues

Global markets pulled back from the lows last week on rising hopes of a benign Fed stance. The DJIA has, however, not yet risen above the resistance at 13500. But chart patterns indicate that the index can try to get back towards 14K soon. Markets in Asia are in the wait-and-watch mode prior to the FOMC meet. The only exception being the Hong Kong market, which soared to new highs.

Nymex crude retreated from its intra-week high of $80.3 to close the week at $79.1. Since the current rally is the fifth wave from the January low of $49.9, the short-term target is $84.4. This target is achievable if the commodity stays above $76 in the near term.

Index Outlook

Sensex (15590.4)

The Sensex edged higher last week. But the conviction witnessed in the previous week was missing from our markets. The consensus is veering towards the need for a pause before we move higher. Most pivotals meandered sideways in a clueless fashion making the attention shift to small-cap and mid-cap stocks.

The laboured moves made by the Sensex last week has resulted in the deterioration of the short-term momentum. Weekly momentum indicators are, however, still signalling a buy. Another positive factor is that the Sensex is holding above the 50-day moving average line positioned at 15058.

As per e-wave counts, the movement of the Sensex last week is a running correction with another brief spurt upward to 15868 or 15950 in the offing. But the target for the move from 13780 trough, fall at either 15721, 15950 or 16215. Since the first target has already been achieved, investors should brace themselves to face another dip soon. As explained last week, the confluence of intermediate and medium term targets around the 16000 level should make investors wary as the index nears this mark. A reversal from this level can make the Sensex move back to test its August lows.

The Sensex is expected to move lower to 15296 and then 15035 in the week ahead. Fresh purchases should be avoided if the Sensex closes below 15000 as that would usher in a fall to 14500. Resistances for the week ahead would be at 15868 and then 15950.

The short-term outlook for the Sensex stays positive as long as it remains above 15000. But the presence of strong resistance zone just 400 points away, calls for a cautious approach at this juncture. Chart patterns in other global indices indicate that the third leg of the correction from the July highs could have commenced last week.

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Nifty (4509.5)

Nifty reversed from our near-term target at 4553 last week. But the selling pressure encountered near intra-day highs is a negative sign. The Nifty can begin the week on a choppy note with a dip to 4429 or 4350.

There is a strong support band between 4350 and 4397 where short-term traders can look out for buying opportunity. However, fresh longs should be avoided below 4350 as the index would then crumble to 4215.

The resistance levels for the week would be 4564 and then 4635. As explained last week, the zone between 4650 and 4750 is an important level from the long-term perspective. Those holding long positions can book some profits in this band.

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Global Cues

Friday’s set-back confirms that the recovery in global indices is nothing but a pull back in a bear phase. DJIA reversed from 13515. The next support for this index is at 12960. A fall below will drag the index below the recent trough at 12560. Asian markets were straining to hold higher levels. European markets have entered in to a medium term down trend once more. The CBOE VIX indicator that measures investor’s sentiment rose above 26 on Friday, indicating that investors are getting nervous again.

Nymex crude prices hit an intra week high at $77.4. Since the current rally is the fifth wave from the January low of $49.9, the short-term targets are $79.6 and $84.4.

Index Outlook

Sensex (14424.8)

Global markets partied last week as the spectre of a financial crisis started dissolving in to the background. The Sensex was, however, held back from joining in the celebrations thanks to the pandemonium on the political front. The Sensex managed to close the week in the green though its mid-cap and small-cap peers closed the week with losses.

Subdued volumes and deteriorating breadth recorded last week indicate that investors are biding their time, waiting for the volatility to subside. Cash market sales by FIIs also petered off as the week progressed. The focus will once more turn to the derivative market next week as the long-drawn August series draws to a close. Low Nifty put-call ratio points towards squaring of short positions and the oversold nature of the market.

The Sensex went nowhere last week, charting a symmetrical triangle pattern. The 200- day simple moving average line is acting as a buttress in dips. The oscillators in the weekly chart are rather precariously poised. But the 10-week ROC needs to move deeper in to the negative zone to signal the onset of the third leg of the correction that commenced at 15863. The daily oscillators are implying a short-term rally in the offing.

As explained last week, the 13780 level from where the Sensex reversed the previous week is a significant intermediate support. If the 13 per cent down-move in the Sensex is just another bull-market correction, it can halt at these levels. The strength in the subsequent rallies should help us know if the correction has already ended or if it will have more ‘legs’. Investors need not fret as long as the index rules above 13140.

The trend would continue to be indecisive in the short-term with the Sensex confined to a range between 13800 and 14800. The Sensex will attempt to move higher to 14680 or 14882 next week. A close above 14882 is required to make the short-term outlook positive for the Sensex again. Supports for the week would be at 14063 and then 13759.

Nifty (4190.1)

Nifty managed to hold above the near term trough at 4002. The 200-day moving average positioned at 4076 needs to be closely watched now. A close below this line will weaken the bulls considerably.

A minor rally can be expected next week to 4240 or 4320. A close above the second target would signal that the short-term trend has turned positive again. Conversely, a reversal below 4240 would drag the index lower to 4098, 4003 or 3895.The medium term outlook is neutral and clear direction would emerge only when the index moves out of the range between 4000 and 4300.

Global Cues

Global markets were firmly on the road to recovery last week. Some Latin American markets such as Brazil and Chile have already retraced almost 61.8 per cent of the correction. Among the Asian countries, Hong Kong and China led the upward surge. Other Asian markets in Japan, Taiwan, Thailand, Indonesia, Korea etc. put up a more subdued performance.

Europe is still struggling. Dow staged a good fight-back last week. It is poised just below the resistance at 13500. A move beyond would mean that the correction has been brought to a close

Index Outlook

Sensex (14868.2)

Markets were fixated on the sub-prime contagion last week, rising euphorically on the slightest indication that it had abated and tanking miserably when the issue reasserted itself. The mild 2 per cent loss in the Sensex does not reflect the wild intra day swings that buffeted the investors last week.

The liquidity prop that helped the Sensex cross 15000 is turning shaky now. FIIs have been net sellers in August so far. The mood in the market has not turned negative enough to indicate a bottom. The build-up in the derivatives section continuing above Rs 80,000 crore and dip in Nifty put-call ratio indicates that players are betting on the correction ending soon.

If we consider the rally from the March trough of 12316, the index has completed the minimum retracement of 38.2 per cent. If the Sensex manages to hold above 14500, the positive outlook for the intermediate term will continue. But a fall below will mean that the index will head for the band between 13900 and 14200.

Though the correction is providing lucrative buying opportunities, any buying should be staggered and done with the long-term perspective only. We are beginning to get early indications that we could have begun the correction of the 7000 points rise recorded since last June. The minimum target as per this count is 13748. Though a move below 14500 is the first requisite for confirming this assumption, some restraint in chasing stocks is called for at this point.

The reversal on Thursday and the gap-down opening of Friday have made the short-term outlook very negative for the index. Volatility would rule supreme next week too. The Sensex could try to edge up to 14942 and then 15170. Failure to move beyond 15000 would be a sign that the index is heading for another sharp dip to 14570 and then 14379. Support below will be available at 14154. A move beyond 15540 is required to make the short-term outlook positive.

Nifty (4333.3)

Nifty reversed from our second resistance at 4525 last week to end the week slightly below the 50 DMA. Thursday’s reversal could be the beginning of the third leg of the fall that began at 4643. This wave has the targets of 4297 and then 4154. Since the index is hovering above the first target, a step lower will take it to the next target.

The initial target if Nifty is correcting the move from the 2595 low is 4028. Investors should watch out for the support band between 4000 and 4050.

Resistance for the week ahead would be at 4350 and then 4419. Reversal from the first target would be very negative whereas a move above the second resistance would take the Nifty to 4530.
Global Cues

The rally in the early part of last week in the Dow Jones Industrial Average was halted at 13700, as indicated last week. A move lower to 12800 seems imminent. But the up-trend from the June 2006 will be jeopardised only on a fall below 12800.

Nymex crude too moved lower last week. The breach of the support at $71.9 is a trifle worrisome. The subsequent supports are at $69.7 and then at $67. A move below $67 will mean that the intermediate term up trend from the January low of $49.9 is complete.

Index Outlook

Market mood is swinging back to a state of utopia where all the negatives are banished from the realm of thought and only the positives are allowed to blossom. Strong global markets and the liquidity suffusing our markets could be partly responsible for this upbeat feeling in the street.

Having conquered the peak at 15K, Sensex did a brilliant job of staying above the mark and closing the week with a 2 per cent gain. The deluge of inflows from FIIs in the cash segment gave a fillip to the already exuberant markets. However, the domestic mutual funds were more wary, preferring to book profits. The derivative segment is going from being overheated to turning red-hot.

We had glanced briefly at the long-term counts in the July 1 column. The Sensex movement last week suggests the continuation of the long-term up-move that commenced four years ago. The most obvious count is that the fifth wave of the move from the 8800 trough of the Sensex has been unfolding since 12316. This wave has the targets of 15091 and then 16345. Termination of the wave at any point between these two targets is also possible.

The first hurdle for next week would be at 15388. Move beyond 15388 would set-off another vertical move to 15533 or 15743. Conversely, a reversal below 15400 can set off a short-term reaction that can pull the index to 14750 and then 14619. Short-term investors can buy in dips until the Sensex stays above 14619. Fresh purchases should be avoided on a fall below 14600.

Though technical indicators are reaching overbought levels, the market can continue in this ebullient state for some more time. It is important to keep a balanced head on the shoulder and not to go chasing after ‘hot stocks’ in such a market.

Nifty (4504.5)

Nifty moved well past our outer target of 4480 last week. The long-term target for the Nifty while assuming the continuation of the move since 2595-low would fall at 4390 and then 4731. The Nifty is currently poised between these two targets. In the week ahead, the resistance at 4520 needs to be firmly surpassed in order to take the index to 4581 and then 4629. The supports will be at 4443 and then 4405. Traders can buy in dips until the Nifty stays above 4400.

Global Cues

A closer scrutiny of DJIA is required now as it is this average that is ensuring the continued rally in all the other indices. This index is in a strong up trend since last July. The third leg of the move that translates in to a broad target of 14000. The minor counts of the move since 11939 throw up the targets for DJIA at 13928 and then 14223. A fall below 13300 would be needed to reverse the medium-term outlook. Nasdaq composite too is gung-ho, having broken out beyond the long-term resistance at 2650. Comex gold has reversed from the 200 DMA and is trying to stage a come-back. The $675 mark needs to be keenly watched now. A move above this level will take gold beyond $700 again. Nymex crude paused for a breather, moving between $71.5 and $73 last week. The long-term e-wave counts for crude since the 1998 low of $10.35 throw up the targets of $127 and $175.

Index Outlook

The ovation that greeted Sensex on recording a new high and scaling 15000 last week proves beyond doubt that it reigns supreme over the rest of the indices of the Indian stock markets. How else can one account for the rather incongruous festivities that greeted the event despite the fact that Nifty and a host of other broad market indices such as BSE 500, BSE 200 and the BSE Midcap Index have recorded new highs more than a month ago.
The pile-up in the derivatives segment is increasing every day. The open interest is near Rs 70,000 crore and we are just a week in to the July series. We can, however, draw solace from the fact that institutional players account for a chunk of this open interest.
There are traces that the Sensex is beginning to tire now. Despite, the Sensex recording new highs, the rate of change oscillator in the weekly chart is in the sell mode. The negative divergence in the same oscillator in the daily chart, too, points towards the need for greater momentum if the index has to go higher in the short-term.
If we consider the move from 12617, the Sensex has the targets of 14645 and then 15320. If we move down one degree and extrapolate the targets of the move from 13554, they are 14643 and then 15075. Since the first targets have already been achieved, the Sensex could halt in the region between 15075 and 15320. The 50-day moving average at 14295 should be the support that investors should watch.
For the week ahead, the Sensex can move higher to 15023, 15075 and then to 15219. There are a cluster of resistances between 15000 and 15100, which might not be easy to surmount this week. Short term investors and traders can, however, buy in dips as long as the index stays above 14617. The next support would be 14357.
Since we are again gearing to face the once-in-a-quarter, trend-defining event for the Indian stock markets, the Infy earnings announcement and guidance, next week; long-term investors are advised to stay off the markets for a week until the event has been assimilated.

Nifty (4384.8)
Nifty made a record high at 4411 last week. But the three dojis in the daily chart of the Nifty last week suitably reflect the tussle between the bulls and bears at this point. As explained last week, the zone between 4350 and 4400 is a potent resistance that can cause a medium term reversal. Though the Nifty can move higher to 4434 or even 4480 next week, we continue to advocate caution with long positions. However, fresh shorts are also not advised until there is a close below 4211. Supports for the week would be at 4293 and then at 4220. Global Cues
The Asian markets such as South Korea, Hong Kong, Indonesia, Taiwan, Thailand etc. surged to record highs. The only exception was the Shanghai Composite Index that recorded negative returns for the week.
Cotton futures on New York cotton exchange rising above a two year range to close at $62.73 should be a cause for concern for manufacturers of cotton textiles. Crude continues to go from strength to strength. It is confirmed that the current move is the third leg of the rally that commenced from the low of $49.9. The targets of this move are $70 and then $77. Nymex crude prices are now headed towards the second target.

Index Outlook

Sensex (14162.7)

Sensex steadied itself around the 14000-level though attempts at moving higher were stymied by the mammoth DLF issue. With yet another colossal issue scheduled next week, the secondary market has to be content with waiting for its turn on the sides.

The dwindling turnover recorded in the cash and derivative segment could be partly attributed to the wary attitude adopted by the market participants after the turbulence witnessed in the second week of June. Such a stance is immensely preferable to the smugness that was pervading our markets.

Net FII inflow in the cash segment is decelerating after the deluge witnessed in May. Mutual funds have also been net sellers in June. Capital goods, consumer durables and metals took the market forward last week while the other sectors languished.

It was mentioned last week that Sensex had already met the minimum retracement requirement of the move from 12425. Since, the 13820 support in Sensex remained unchallenged last week, the medium-term outlook stays positive. Investors can hold on to their short-term positions till Sensex stays above this level.

The index could spend the next two weeks moving sideways between 13800 and 14400 before making another attempt to conquer the 15000-peak. Fresh positions should be avoided below 13820, as such a move will portend a sharp slide to 13287.

The short-term trend in Sensex stays down. The 10-day ROC slipping in to the negative zone implies that selling pressure will be felt in the short-term. The resistance for the week ahead would be at 14400. Inability to move above this level will drag the index lower to 13969 or 13870. A rally past 14400 will take Sensex to 14683 again.

Nifty rebounded from an intra-week low of 4101. A short-term recovery is currently underway. This recovery has the targets of 4200 and then 4263. Since the first target has already been achieved, we can have a reversal that takes Nifty to 4100 or 4048. The 50 DMA at 4112 is an important support for the short term. The short-term outlook will stay negative till the index is below 4263. A move past 4263 will mean that Nifty is heading towards 4335 and then 4482. The medium-term outlook will stay positive till the index is above 4078. Position traders can hold their long positions with a stop at 4070. Trading is expected to be an ordeal over the next couple of weeks. Traders are advised to reduce leveraged positions and to trade with tight stops.

Global Cues

The surge witnessed in the later half of last week has taken most global markets towards their record highs again. The DJIA moved past 13530 on Thursday and is on the verge of a new peak. The Shanghai Composite has moved beyond 4000 and has made the immediate outlook neutral. Some markets such as Korea, Brazil, Chile etc., have soared well above the peaks made prior to the June correction.

Oil was back in the limelight as low output from US refineries and escalating tension in West Asia pushed the prices towards $68. Another step forward would indicate that the C wave from the January low of $49.9 is in motion. The targets in this case would be $73 and then $80. Time to be long in crude with a stop at $64.

Though Comex copper recovered towards weekend, the pullback seems to be a part of a corrective phase before the resumption of the down-move. Comex gold is halting in the important support zone between $635 and $645.

Index Outlook

Sensex (12856.1)

The rather exaggerated response to the RBI's move last Monday stresses the fact that the path of least resistance is currently downwards. Another spunky fight back was required to pull Sensex back from the brink. What is worrying at this juncture is the underperformance of our equity markets vis-à-vis the rest of its global peers in March.

Autos took it on the chin and the BSE auto index is now headed towards its June lows. Healthcare and metals can offer refuge in these choppy times. Mid-cap and small-cap stocks are in a state of hibernation and are best avoided.

A cautionary stance adopted by market participants ahead of the earnings season was reflected in the low volumes recorded last week. FIIs were selling in the cash segment last week. But they have been net sellers in the derivatives segment on days that the market fell and net buyers on the days that the market recovered. Such myopic activity reflects the general air of indecision prevalent in the market.

This ambivalent air is echoed in the daily momentum indicators as well. The weekly momentum is showing the first signs of cracking. The 14-week RSI is positioned at 46 and the 10-week ROC is beginning to move deeper in to the negative. The 10-month ROC will be an interesting oscillator to track over the next two months. It is poised above the zero line. This indicator has not dipped in to the negative since 2003!

Sensex reversed from a low of 12425 last week. The 200-day moving average has once more come in handy in supporting the index. The e-wave counts are unaltered. The medium term outlook stays negative as long as Sensex stays below 13800. The short-term trend is currently sideways. The second wave from the top of 14723 could be evolving in to a flat pattern.

The next minor wave of this flat can take Sensex higher to 13086 or 13495 next week. Any up-move will struggle to cross the 13500-level, as a cluster of technical resistances is present there. The outlook for the week will, however, turn negative if Sensex fails to rally past 13000. The downward targets in this scenario would be at 12359 and then 11992.

Investors can bide their time till the market makes up its mind about Infosys' earnings and guidance. Traders should stick to intra day trades.

Nifty reversed from a low of 3617 last Monday. The recovery thence has not been strong enough to make the short-term outlook positive. Wait for a rally past 3800 before playing long with a target of 3820 and then 3946. Failure to get past 3800 will be a cue to play short with a stop at 3825. The downward targets would be 3594 and then 3486.

The important resistance that investors need to watch out for is around 3900.

Global Cues

Equities across the globe had a splendid week, with many of the indices leaving the woes of February far behind and hitting new highs. The out-performers included many Asian markets such as China, South Korea, Indonesia and Taiwan. India was at the bottom of the heap with Sri Lanka and Pakistan. Neighbourly solidarity!

Nymex light crude could not get past the resistance at $68 and eased down towards $64 on the resolution of the Iran-UK standoff. The long-term average present at $63 would now be closely watched. Fall below this line can take the price to $60.5. The medium term outlook, however, continues to be positive.

Nifty (3752)