Sunday, April 4, 2010

BSE aiming 18000

Moving towards 18,000

Sensex (17,692)

There was a flutter of excitement last Monday as Sensex and Nifty scaled their former 2010 highs. But the benchmarks were not allowed to steady themselves at those peaks as a bout of profit booking swept them lower. Since readings from the economy, both local and external, continue to be robust, the Indian benchmarks could accomplish the feat of closing at a new 2010 high in the upcoming weeks; following in the footsteps of their global peers, some of whom have even moved on to new life-time highs.

Volumes were good in both cash as well as derivative segment last week as mid and small-cap stocks moved back in to the thick of the action. Trading interest too remains high and the open interest has already moved above Rs 1 lakh crore. FIIs too remained net buyers, aiding the positive sentiment on the bourses.

We discussed the long and intermediate-term outlook in our last column. Sensex is once again closing in on the intermediate-term resistance zone between 17,800 and 18,200 and investors ought to stay watchful as long as the index does not record an emphatic close beyond 18,500.

The medium-term trend for the index is sideways within the wide range between 14,000 and 18,000. The current up-move from February 8 trough appears to be the third leg of a flat that has the targets of 17,074, 17,954 and then 18,830. If we consider the minor counts of the up-move from 15,651, we get the more modest targets of 17,900 and 18,200.

There is a confluence of targets in the zone between 17,800 and 18,200 and the index appears on the verge of moving in to this zone. The ten-week rate of change oscillator moving above the zero line and the relative strength index at 62 point towards the medium-term trend continuing. However, it needs to be remembered that there is a strong negative divergence in both these oscillator charts.

To put it in simpler terms, there is a strong likelihood of the index moving towards 18,000. Investors with short-term perspective can ride this up-trend with suitable stop losses while long-term investors can wait to see the sustainability of this uptrend before committing fresh funds.

The index could be choppy in a narrow range between 17,500 and 17,800 for a few more sessions before breaking higher to 17,944 or 18,225. This view will be negated on a close below 17,500 and that will pave the way for decline to 17,500 or 17,337 in the near term.

Nifty (5,290.5)

Nifty moved to a new yearly high of 5,329 last Monday before declining to the intra-week low of 5,235.

The short-term trend in this index continues to be up. Formation of higher trough last week signals the possibility of another move higher to 5,323 or 5,378 in the days ahead.

Traders can buy on declines with stop at 5,200. However, breach of this level will imply that the index could decline to 5,187 or 5,080. Swing traders can hold their long positions as long as the index trades above 5,080.

The medium-term view for Nifty is sideways. But the index could push its upper boundary a little to 5,380 or 5,466. Equity benchmarks held close to their recent highs and closed the week with gains. CBOE volatility index closed the week about 2 per cent lower though it is off its recent lows implying that traders continue to feel sanguine. Commodities such as crude and base metals surged higher while dollar declined.

This sent commodity stocks soaring helping Brazil's Bovespa and Mexico's IPC to a new 21-month high.

US stocks were buoyed by strong unemployment data that took Dow to a new 18-month high. Minor counts of the move from February 5 low in the Dow imply that there is another upsurge pending in this index to 11,121 or 11,284. This view will be negated only on a close below 10,800.

Asian stocks had a strong week and breakout is observed in charts of many of the benchmarks such as the KLSE Composite Index, Hang Seng, Nikkei, Shanghai Composite and Thailand's SET. — Lokeshwarri S.K.

Source : Businessline

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