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