Index Outlook: Action-packed week ahead

The market was buffeted by strong gusts of news-flow last week first sweeping stock prices lower and then lifting them sharply higher. The two hurricanes, Sandy and Nilam provided the windy back-drop to the week’s proceedings as the Sensex and Nifty ended with minor gains.

The week ahead promises more fast-paced action as the US goes to poll to elect its next President on Tuesday. With behemoths such as SBI, ONGC, Tata Steel and Coal India too lining up with their quarterly scorecard next week, market participants can look forward to interesting times (not as the Chinese mean it).

The market was disappointed that the RBI stopped short with a minor tweak to the CRR in its monetary policy review early last week, dragging the Sensex and the Nifty to their intra-week lows. There was a gradual recovery thereafter on lower CPI number for September and automobile sales spiking up for the last month. Arvind Kejriwal and his latest accusation against RIL was the other sidelight.

FIIs were net sellers in the first half of the week but they turned net buyers as equity prices reversed higher. Their tally for this year is now more than $18 billion. Derivative volume spiked on the day the stock prices plunged lower. Index put call ratio around 0.80 indicates that many traders have reduced their short positions in the fall last week.

Sensex (18,755.4)

The Sensex hit the intra-week low of 18,398 before rising to 18,794 on Friday. Since the index has attained our first short-term target of 18,442, it is possible that one leg of the correction from 19,137 peak is complete.

Immediate short-term resistance is at 18,854. Short-term trend will reverse higher once the index moves above this level. Next target would be 19,137. But failure to move above 18,854 emphatically will result in the index declining to 18,393 or 18,116.

As far as the medium-term view is concerned, we are considering two counts. The first is that the index is in a sideways flat formation since the 15,135 trough. According to this count, the uptrend that is in motion since the June low should end in the band between 18,800 and 19,100 and the index should head lower 17,800 or even to 17,000 in the months ahead. Long-term investors however need not worry as long as the index trades above 17,000.

The other count is that a fresh leg of the long-term trend is unfolding since the 15,748 low. If the index manages to hold above 18,200 and consolidates in the band between 18,200 and 19,200 for few more weeks, it will mean that the index could be gearing for a move to a new high in 2013.

We will have to read the signals from the index movement in the weeks ahead to deduce which of the two counts could be the right one.

Nifty (5,697.7)

The Nifty recorded the low of 5,583 before reversing higher last week. The index has achieved our outermost target at 5,596 so we have to assume that one minor wave is complete. The bounce-back wave that is currently on faces resistance at 5,726. The index also formed a doji in the daily candlestick chart pattern.

There is a possibility of the index reversing lower from the resistance at 5,726. Downward targets in that event would be 5,582 and then 5,494. Short-term traders can therefore play short if the index fails to cross above 5,726.

Short-term trend will however turn upward on close above 5,726, paving the way for rally to 5,815.

From a medium-term perspective, if the index manages to move between 5,500 and 5,800 for few more weeks, it will have bullish connotation and will mean that the long-term trend is positive.

Move below 5,400 will mean that the index can move on to 5,296 or 5,171 in the months ahead. Long-term outlook will turn negative only on close below 5,196.

Global cues

Global equity markets moved slightly higher last week. Hurricane Sandy wiped off two of the sessions on NYSE in what is cited as the longest weather related shut-down of the US bourse since 1888. European markets too had a quiet week with the DJ Euro STOXX 50 closing 50 points higher. This index is moving in a narrow band over the last five weeks as the rally from June low pauses.

The volatility index closed unchanged last week. That this index is trading close to its long-term low implies that the mood among US investors is quite optimistic as they go in for the Presidential poll next week, the impending fiscal cliff notwithstanding.

The Dow appears a trifle nervous as it goes into a significant week. The short-term trend is down since the peak of 13,588 formed on October 18. It is currently hovering above key short-term support at 13,040. If this level is breached, the index can head to 12,850 or 12,650. The medium-term term view will, however, deteriorate only on a strong weekly close below 11,000.

Gold lost the battle with the resistance around $1,800 and is in a correction now.

This decline has the next supports at $1,662 and $1,630. Gold bulls should watch out for buying opportunity around the second support. Reversal above this level will keep open the possibility of a new high in the next 12 months.

>lokeshwarri.sk@thehindu.co.in

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