Saturday, 6 October 2012

Index Outlook: Sensex tantalises at 19,000

Index Outlook: Sensex tantalises at 19,000
Clean Media Correspondent

Mumbai, Oct 06 (CMC) There is a wave of cheer rippling through the stock market as the Sensex flirted with the 19,000 level last week and the Nifty briefly climbing above 5,800. Stock portfolios are sporting a healthier glow and those who had sworn off stock markets have begun wondering if they should dip a toe into it.

It was a quiet start to the week with the indices etching minor gains in the earlier part. But the Union Cabinet approval of key proposals concerning insurance, pension and commodities market sent stock prices shooting higher on Thursday.

Doubts regarding the passage of the amendments in Parliament coupled with profit booking dragged prices lower on Friday. The flash crash on NSE added to the nervousness in that session.

Global cues were benign. Better than expected US jobs report helped US stock indices close at the highest level since 2007. But doubts about slowing global economy and European debt problems continued to play on the back of investor minds.

NSE derivative volumes were dull in the first half of the week but became robust thereafter. Cash volumes are also at record levels this week. FIIs net purchased stocks through the week, albeit at a slower pace. They have purchased $21 billion in equity and debt through the exchanges so far this year. Derivative open interest at Rs 139,000 crore is not high enough to cause trouble. Put call ratio is also close to 1 implying that many bears have closed their short positions.

Industrial production data to be revealed next week and earnings for the second quarter will preoccupy market participants as they once more take stock of company valuations. Infosys’s earnings will be keenly awaited after the stock’s debacle on the last occasion it announced its quarterly earnings.

Sensex (18,938.7)

The Sensex hit the intra-week high of 19,137 on Friday before reversing in that session. The negative divergence in the daily chart implies that the index is losing momentum from a short-term time-frame.

It is difficult to parrot the same view every week. But the index is moving in a sideways range with a slight upward bias over the last three weeks. It reached the critical long-term resistance at 18,800 on September 21 and is tantalisingly hovering in the resistance band between 18,826 and 19,136 that we had indicated. At the risk of sounding boring, we have to repeat that investors need to tread carefully as long as this band is not cleared emphatically.

A confluence of wave targets makes this a formidable resistance. But what if the index powers ahead instead of reversing lower? We will then have to revise our counts from an irregular flat to a triangle from the 21,108 peak that has ended at 16,598. The up-move since then would have to be a fresh leg of the long-term bull-market. We will wait for a break above 19,150 before switching over to the other count. Medium-term trend support continues at 17,700.

The short-term trend is positive since the index is currently in a running correction that denotes bullishness. Short-term targets for the index are 19,280 and 19,611. Target on a strong move above 19,611 is 19,992.

To put it simply, the index could move to 19,600 on a strong move above 19,150. Short-term supports are at 18,418 and 17,982.

Nifty (5,746.9)

The Nifty hit the intra-week peak at 5,815 on Friday before easing up slightly. The movement in the index since September 21 appears to be a corrective wave that is moving in the direction of the prevailing trend instead of against it (running correction).

We retain the medium-term target at 5,870 since 1:1 extrapolation of the move from 4,531 trough gets us there. It is on a strong move above this level that we would have to revise the counts as explained under the discussion on the Sensex.

Short-term targets if the index continues moving higher in the coming sessions are 5,920 and 6,025. Short-term supports will be available at 5,638 and 5,586. Traders can play long as long as the index trades above the first support.

Global cues

Most global indices closed the week in positive territory. CBOE volatility index moved to the lower end of its current range at 13.6 reflecting bullish sentiment among US investors.

The Dow recouped all the losses made in the previous week to close the week with 173 points gain. Short-term supports stay at 13,240 and then 13,000. Close below the first support is required to indicate a reversal in short-term uptrend. If the index manages to hold above this level, it can move higher to 13,784 or 14,043. Close below 13,000 is needed to indicate a reversal in medium-term trend.

Some of the other Asian emerging markets such as Philippines and Thailand are going at full throttle with the benchmarks of these countries hitting new life-time highs last week.

Weekly movement of gold is mimicking the movement in the Sensex. The metal is moving at the critical long-term resistance band over the last three weeks without giving an indication of the direction in which it will break-out.

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