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.