Sunday, April 19, 2009

Market Outlook for 20-24 April 2009

Index Outlook

Sensex (11023.1)

Indian stock market juggernaut rolled on to a sixth consecutive positive weekly close. Neither disturbing guidance from Infosys nor the cacophony of the Lok Sabha elections deterred its progress.

It promises to be an action-packed week ahead with the monetary policy review, corporate earnings and IPL matches vying for investors’ attention.

Though the large-cap stocks appeared a trifle hesitant in last week’s trade; stellar moves made by mid and small cap stocks ensured that investors had nothing to complain about. Volumes soared through the roof. Average volume in NSE cash segment was Rs 18700 crore last week.

Volumes in NSE derivative segment averaged Rs 75000 crore in the last three sessions. Last time such volumes were witnessed was in the last quarter of 2007.

Open interest has leapt to Rs 86000 crore, implying that leveraged trading is back in vogue. FIIs doggedly remained net buyers, even on days when the markets corrected; taking their tally of net inflows for April to $730 billion.

Oscillators in the daily chart are still featuring in the overbought region. But such indicators become ineffective in strong trending market where they can stay overbought for considerable length of time. Weekly oscillators are beginning to move in to bullish region.

However, the index is currently grappling with the strong resistance offered by the 200-day moving average. High volumes witnessed over the last three sessions too suggest that the bulls and bears are battling it out for supremacy around the long-term moving average.

It needs to be borne in mind that since this is a long-term indicator, we need to wait for the index to sustain above this line for at least a couple of weeks before we can conclude that the long-term trend has reversed.

Immediate targets for the move from 8047 low are 11305 and 11600. Sensex achieved the first target and is whipsawing violently since then.

Investors ought to be cautious if the index continues to struggle to move beyond 11300, since that would imply that a terminal corrective is being formed that can be followed by a decline to 10000 or even 9500. Rally above 11600 will take the Sensex to the next resistance zone around 11800.

The short as well as medium term trend is currently up and prudence dictates that it is best to flow with the trend till we get confirmation that the trend has reversed. Supports for the week ahead are 10650 and 10230. Short-term investors can buy in declines as long as the first support holds. Upper targets for the week would be 11367, 11640 and 11820.

Nifty (3384.4)

Nifty made an attempt to climb above 3500 before a mild correction set in. It is difficult to determine if the movement over the last three sessions is a terminal corrective or a running correction. According to both the counts, sharp moves can be expected in the week ahead. As explained before, if the move from the 2539 low is the B wave of a long-term bear market, its first targets would lie in the zone between 3480 and 3680.

Since Nifty is already at this zone, it would do to stay extra vigilant.

The short-term trend however continues to be up and traders can buy in declines as long as the index holds above 3300. A firm close below 3100 is needed to indicate that the medium-term trend is reversing lower. Upper targets for the week are 3550 and 3684.

Global Cues

Equities put up a strong show last week. Stock markets in Brazil and Argentina continued their uptrend and made fresh highs for 2009, European markets too rallied strongly. DJ Euro STOXX 50 closed 4 per cent higher last week. Jakarta Composite Index was the out-performer with11 per cent weekly gain.

Action on the Dow was however muted, the index closed with less than 1 per cent gain. It is yet to gather sufficient momentum to break above the resistance at 8100. As explained before target above this level is 8800 and 9100.

 — Lokeshwarri S.K.

Businessline 19-04-09