Index Outlook, Stock Analysis: BusinessLine

Index Outlook
DERIVATIVES MARKETS: Nifty may move in narrow band

Sensex (14724.2)
The markets could not revel in plunging commodity prices for long as the spectre of slowing economic growth manifested itself once more in industrial production and in the economic outlook of the economic advisory council. Rate-sensitive stocks that had begun a merry rally were hammered down once more as investors rushed to lock in their gains.

It was another dull week and the Sensex eased lower after the peak at 15580 on Tuesday. Volumes were low as traders took time off to enjoy the long weekend. Open interest continues to be high, though reduction in Nifty put call ratio implies that short positions are being squared up during declines.

The exhaustion gap formed on Monday was closed in the subsequent session heralding the commencement of a down trend. A 3-wave move has been completed from the trough at 12514 formed on July 16. The dark-cloud pattern in the weekly candlestick chart along with the downward reversal from key level, in the weekly relative strength index, denotes that the medium term up trend from the July trough has ended last week.

But this could be just one part of the corrective up-move in the bear phase from 21206. As explained last week, there are numerous ways in which the rest of this correction can shape. The movement of the Sensex over the next two weeks would help form a better picture of the road ahead. Here are a couple of pointers to the way the index can move in the near term and its implications,

A decline to the zone between 14365 (50-day moving average) and 14420 appears imminent in the near term. A reversal from here would have bullish connotations for the medium term and would signal an impending move towards 17000.

The medium-term outlook will turn neutral on a penetration of 14360. The subsequent supports are at 13700 and then 12514. Such a decline would imply that the correction could result in the index vacillating between 12500 and 15500 for a few more months.

Our outlook for the week ahead is ambivalent, neither negative nor positive. Resistances for the week ahead would be at 15250 and then 15580. Failure to surpass the first resistance would drag the index lower to 14425 or 14063. Fresh trading longs should be avoided below 14425.

Nifty (4430.7)

The Nifty reversed from an intra week peak at 4650 last week. The medium term up-move from 3816 appears to have been completed last week and a decline towards 4300 is possible in the near term. If this level is penetrated, the next support is at 4120. The medium term outlook will turn negative only on a decline below this level.

Conversely an upward reversal from 4300 will underline the bullishness for the near term and pave the way for a rally to 5050. Resistances for the week would be at 4560 and then 4650.Failure to rally beyond the first resistance would be provide a shorting opportunity to traders.

Global Cues

Dow Jones Industrial Average reversed lower from 11867 on Monday. But the near term outlook for the index will stay positive as long as it holds above 11230.

After crude oil, it was the turn of gold to hold everyone spell bound, with the awesome 7 per cent decline last week. The selling cascaded once the key support at $850 was breached on Monday. The metal appears to have commenced a long-term correction of the entire bull market since 2001. The immediate supports on the long-term charts are at $780 and then $730. Investors can watch for a long-term trough around $730. —Lokeshwarri S. K.

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Source: BusinessLine