The Indian markets suddenly caved in last Monday, catching most participants unawares. The disquieting aspect of last week's trade was the weakness witnessed in the mid- and small-cap stocks. Both the BSE Mid-cap and Small-cap indices lost around 4 per cent as investors opted to take some money off the table prior to the year-end holiday season.

With just three days to go for the expiry of the December contracts in the derivative segment, volatility is expected to rule high. The large build-up in the open interest will exert downward pressure on stock prices. Liquidity too is far from robust; FIIs pulled out close to $1 billion in cash segment in the week gone by.

The near-term outlook for the Sensex is currently negative. The 14-day relative strength index at 45, and the 10-day rate of change oscillator slipping into negative territory imply that the down-move can continue in the near term. The weekly momentum indicators too corroborate this view. But short-term investors can take heart from the fact that the Sensex is yet to breach the support around 19000. An emphatic move below this level is needed to drag the index lower towards 18500 or 18182 in the near-term.

Our medium term outlook for the index stays positive. The Sensex is consolidating in a band between 18000 and 20500 since October 30. This sideways move is likely to be followed by a break-out to 20942 or 22627. This view will hold good even if the index were to fall to 17800. However, a close below this level will imply that a correction of a larger degree could be in progress.

The bulls are likely to marshal their resources and strike back early next week. The Sensex could move higher to 19500 or 19882. But a downward reversal is possible from either of these two levels. Failure to move above the first resistance would denote that the index would slide down 19067 or 18503. The support zone around 19000 would be effective this week as well.

Nifty (5766.5)

Nifty moved lower as indicated in this column last week. Though it breached the short-term support at 5834, the index was able to pull itself higher from the next support at 5700. The zone between 5650 and 5750 will be an important support level in the week ahead.

The index can attempt to move higher to 5871 or 5992 early next week. Fresh short positions can be initiated if the index fails to get past the first resistance. The downward targets would then to 5670 and then 5557. Our medium term outlook stays unaltered. The Nifty could move between 5400 and 6200 for a few weeks before the index moves higher to 6262 or 6795.

Global Cues

The Dow Jones Industrial Average gave everyone a scare towards the middle of last week when it dipped below the long-term 200-day moving average line. But the situation was salvaged to some extent by Friday's rally. A move beyond 13500 by the index next week will ensure that equities enter the New Year with good cheer. The tech-heavy Nasdaq Composite Index spear-headed the surge last week with a 5 per cent recovery from the week's lowest point. Asian equities remained steady, though the intermediate term trend continues to be down in most Asian markets.

Base metals such as aluminium and copper stayed in a weak mode. Comex gold is consolidating above the 50 day moving average. The outlook for this metal stays positive as long as it holds above $770

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