Sensex heads for another correction
Sensex (13614.5)
Sensex (13614.5)
It was a week that truly mirrored the two emotions that govern all stock related transactions - panic and greed. Prices hurtled downwards in to a bottomless pit in the first half of the week only to reverse mid-way leading to another scramble to get in while prices were relatively `cheaper'. The net loss in the Sensex was just 1.3 per cent though we were staring at a 7 per cent loss at one time.
Market breadth read like a horror story with a happy twist in the end. Derivative segment that saw a vortex of activity on Tuesday is back at its best. Open interest is back near the Rs 50,000 crore mark. The put call ratio in NSE derivative segment has dropped below one indicating that short covering was the primary reason for the pull-back.
Both the BSE Midcap Index and the BSE Smallcap index have retraced 30 per cent of the rally from July lows and seem set to rally above their December highs. Among other sectoral indices, IT and capital goods were the least affected by the turbulence. FMCG, oil and gas, banking and autos have more work to do before they shake off the bear's grip.
The Sensex too has retraced 30 per cent of the rally recorded from the low of 9875. 30 per cent retracements are a sign of strength. The fall in May and June too stopped after a 30 per cent from their all-time high of 12671. The Sensex could have made a medium-term low at 12801.
But we need to see the move next week in order to gauge where the Sensex is headed. If the Sensex does not rally above 13750, we can see another leg of the correction that can drag the index lower to 13058 or 12681. A rally above 13750 can take the Sensex higher to 14035 and then 14390. The intermediate term up trend will be under threat only if the Sensex falls below 12449.
To sum up, the bulls have done a brilliant job of pulling the markets back from the brink. But the good work needs to continue for a couple of sessions more to keep the indices from sliding down again.
Nifty (3888.6)
Nifty hit an intra-week low of 3657 before reversing on Wednesday. That is way below the support of 3790 we had indicated last week. For the short term, the Nifty needs to move higher past 3950. If it does not do so, we can expect one more leg of the downward move pulling the Nifty lower to 3667 or 3518.
The intermediate term outlook for the Nifty will stay positive as long as it stays above 3601.
A rally past 3950 will propel the Nifty to its previous high of 4047 and then 4102. Since we expect the week to be volatile, traders can take a much-needed break to enjoy the profits made in the last four months and wait for clear signals from the market before indulging in fresh trading.
Global Cues
FOMC keeping rates unchanged and data indicating easing inflation spurred DJIA to record highs on Thursday. The European indices, FTSE, CAC and DAX, have recovered remarkably well from the intermediate correction that gripped then them two weeks backs and are back at new highs. It is the Asian indices such as Hang Seng, KLSE, Sri Lanka all share index, Taiwan weighted and Thailand SET that are looking slightly weak. Nymex crude futures for January delivery closed on a strong note at $63.43. The short-term rally that began from the low of $55 seems set to extend to its third leg that can take the crude prices to $67 and then $69. March copper future on Comex hit a six-month low on Friday on over US Dollar's weakness and increasing supplies. The chart is displaying great weakness. A close below $3 will see copper heading towards $2.7.