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.