Sunday, May 3, 2009

Index Outlook for 4-8 May 2009

Index Outlook

Sensex (11403.2)

Equity markets maintained a nonchalant attitude last week despite many unsettling developments. First it was the swine flu that sent a tremor through financial markets, then there were reports of large US banks needing additional capital following the much-talked about stress test and Chrysler filed for Chapter 11 bankruptcy protection. Sensex managed to end the week on a highnote helped by some frantic last hour short-covering of derivative contracts.

It has been a stunning performance by Sensex in the month of April closing with 17 per cent gain. BSE Midcap and Smallcap indices kept pace with 18 and 21 per cent gain respectively. Trading was extremely volatile last week on long and short unwinding exerting pressure in both directions. Breadth was, however, weak as the action was concentrated mainly in the large-cap stocks. Volumes went through the roof, especially in the derivative segment of NSE. FIIs were net buyers for the week.

There is a slackening in the momentum indicators in the daily charts. Ten-day rate of change oscillator is perched on the zero line and the 14-day relative strength is moving down from the overbought zone. Weekly oscillators are however gung-ho. The 14-week RSI is rising at 62. The implication is that though there can be volatility in the short-term, the medium-term outlook is positive.

The three-day week just gone by has not changed our outlook along any time-frame. Sensex is moving in a narrow trading range over the short-term. Interpreting such sideway moves is tricky since though they are mostly continuation patterns followed by resumption of the up-trend, in rare cases, such moves turn out to be the last part of a up-trend called terminal corrective or a rounding top. The correct labelling becomes apparent only on completion of these patterns.

The safe way to play such patterns is to stay with the trend; that is to buy in declines until the index gives clear indication that is has reversed by declining below certain levels. Short-term investors can stay invested as long as Sensex holds above 10650. The trend-deciding level for medium-term investors would be 10200. Immediate medium term resistance band is between 11600 and 11800.

The all-pervading scepticism about the sustainability of the current rally appears to be aiding the Sensex to cover more ground. There can be a move higher to 11547 or 11687 next week. Strong move beyond the second resistance would take it to 12136. Supports for the week would be at 10700, 10440 and 10230.

Nifty (3473.9)

Nifty closed marginally in the red after a volatile start to the week. The index could move higher to 3487 or 3517 next week. If there is a close above the second target, it would usher in a rally to 3572. Supports for the week would be at 3300 and 3170. Short-term traders can continue to buy in declines as long as the index trades above the first support.

Medium term view for Nifty stays positive and a close below 3170 is required to signal a medium-term trend reversal.

Global Cues

Most global indices retained the gains recorded over the past month and closed marginally in the green. CBOE Volatility index declined below 40 as investors resumed betting on a sustained recovery in the markets. Europe was mostly strong. DJ Euro STOXX 50 closed with 2 per cent gain. Dow Jones Industrial Average made a tentative move above the 8100 mark. This index has been moving in a narrow range over the last four weeks. There is a strong chance of a break-out higher to 9100 or 9500 and this positive view will be mitigated only on a close below 7500. Jakarta Composite Index was the out-performer last week with 8 per cent gain.

Our View :

We feel that the market may pause or drift downwards.  The reports of a hung verdict will add to the woes.  Most of the Quarterly results are already priced in and it will be more of stock / sector specific jumps.

IT, Banking, Infrastructure are looking bullish and one can buy on dips.  Realty and Metals could be avoided for the week.

Compiled and Brought to you by 

Equity Research Team

Intelligent Investor -

Invest Advisory Arm of

Ravina Consulting - Bangalore India

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