The razzle-dazzle of Diwali left Dalal Street untouched this year as the Sensex recorded a negative weekly close; the second in the last three months. This sulky mood is a trifle worrisome. But we need to remember that the Sensex has gained 46 per cent in the last three months. One can't blame the investors for taking some of those gains off the table to spend on Diwali revelry.
Volumes petered off towards the end of the week reflecting investors' disinterest. FIIs too have taken their foot off the accelerator; turning net sellers this month in both cash as well as derivative segment.
There are disturbing signals emanating from the derivative segment. Despite the open interest nudging Rs 1,00,000 crore mark, the Nifty put call ratio is extremely low at around 1.1. This could be due to excessive optimism or due to the absence of external participants taking directional calls or hedging at higher levels. Whatever be the cause, our markets are rendered vulnerable without the protective cover of these short positions.
The gentle slide witnessed last week made the Sensex fall to an intra week low of 18737, below our trend deciding level of 19066. The first two session of next week are crucial for determining the short-term trend. The bulls need to stage a bounce from these levels if the momentum has to be maintained. A fall below 18700 would mean that the Sensex is slipping in to a medium-term down trend.
The momentum indicators too signal that the Sensex needs to fall a little further to turn the medium-term trend downwards. A bounce from current levels will result in the resumption of the exhilarating rally in the index.
It is too early to label the correction that began from the peak at 20238. The magnitude and the time of this move will help us decide if the Sensex is correcting the move from 13780 or the move that began much earlier, at 12316. Either way, the Sensex is expected to remain volatile within the 17000 to 22000 range in the medium term as the last phase of the move from June 2006 completes itself.
Investors ought to watch out for the support in the band between 18800 and 19100 next week. A reversal from this band will make the Sensex rally towards 19310 and then 19664. Traders should wait for a move beyond the second resistance before making fresh purchases. A fall below 18800 will mean that the Sensex is heading towards 18342 and then 17861.
To sum up, though the short-term trend is down, the outlook will turn explicitly negative only when the Sensex falls below 18700. But investors are advised to stay on the sidelines and desist from making fresh purchases until index' trajectory becomes apparent. It is imperative to reduce positions in stock futures as the derivative segment is getting overheated.
Nifty (5663.2)Nifty too drifted lower to an intra-week low of 5614. The short-term support indicated last week, at 5664, has not been breached convincingly. So the short-term outlook for the index stays positive. A bounce from the support band between 5600 and 5650 can make the Nifty rise higher to 5766 or 5860 next week.
Traders can initiate short positions if the Nifty fails to rise above the first resistance. Our medium term range for the Nifty is between 5000 and 6500. Fall below 5600 can make the Nifty drift lower towards the zone between 5050 and 5150 in the medium term. Swing traders can watch out for buying opportunity in this band.
Global Cues It was a defining week for the Dow Jones Industrial Average. The 4 per cent fall in the index has turned the medium-term trend downward. It is now obvious that the DJIA is charting the third leg of the correction that began in August. That brings the support at 12500 to the fore again. Fall below this level would mean that a more serious correction is in progress. The Nasdaq Composite Index launched in to a medium-term down trend last week. Other global markets too witnessed some profit booking. CBOE VIX index is near a two-month high indicating the resurfacing of the fears that had pulled the markets lower in August
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