Index Outlook

Sensex (15590.4)

The Sensex edged higher last week. But the conviction witnessed in the previous week was missing from our markets. The consensus is veering towards the need for a pause before we move higher. Most pivotals meandered sideways in a clueless fashion making the attention shift to small-cap and mid-cap stocks.

The laboured moves made by the Sensex last week has resulted in the deterioration of the short-term momentum. Weekly momentum indicators are, however, still signalling a buy. Another positive factor is that the Sensex is holding above the 50-day moving average line positioned at 15058.

As per e-wave counts, the movement of the Sensex last week is a running correction with another brief spurt upward to 15868 or 15950 in the offing. But the target for the move from 13780 trough, fall at either 15721, 15950 or 16215. Since the first target has already been achieved, investors should brace themselves to face another dip soon. As explained last week, the confluence of intermediate and medium term targets around the 16000 level should make investors wary as the index nears this mark. A reversal from this level can make the Sensex move back to test its August lows.

The Sensex is expected to move lower to 15296 and then 15035 in the week ahead. Fresh purchases should be avoided if the Sensex closes below 15000 as that would usher in a fall to 14500. Resistances for the week ahead would be at 15868 and then 15950.

The short-term outlook for the Sensex stays positive as long as it remains above 15000. But the presence of strong resistance zone just 400 points away, calls for a cautious approach at this juncture. Chart patterns in other global indices indicate that the third leg of the correction from the July highs could have commenced last week.

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Nifty (4509.5)

Nifty reversed from our near-term target at 4553 last week. But the selling pressure encountered near intra-day highs is a negative sign. The Nifty can begin the week on a choppy note with a dip to 4429 or 4350.

There is a strong support band between 4350 and 4397 where short-term traders can look out for buying opportunity. However, fresh longs should be avoided below 4350 as the index would then crumble to 4215.

The resistance levels for the week would be 4564 and then 4635. As explained last week, the zone between 4650 and 4750 is an important level from the long-term perspective. Those holding long positions can book some profits in this band.

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Global Cues

Friday’s set-back confirms that the recovery in global indices is nothing but a pull back in a bear phase. DJIA reversed from 13515. The next support for this index is at 12960. A fall below will drag the index below the recent trough at 12560. Asian markets were straining to hold higher levels. European markets have entered in to a medium term down trend once more. The CBOE VIX indicator that measures investor’s sentiment rose above 26 on Friday, indicating that investors are getting nervous again.

Nymex crude prices hit an intra week high at $77.4. Since the current rally is the fifth wave from the January low of $49.9, the short-term targets are $79.6 and $84.4.