Saturday, November 20, 2010

Index Outlook — Looking for a foothold

Global jitters continued to take their toll on Indian stock prices and yanked the Sensex below the 20,000 mark in the first half of the week. Even as other markets stabilised towards weekend on hopes that Ireland was moving towards a bail-out, Indian stocks were subject to another round of battering on Friday, ostensibly caused by some creative rumour mongering.



The blue-eyed boys of foreign investors, India and China were the worst hit in the equity sell-off last week. Benchmarks in both the countries closed 3 per cent lower. Daily turnover in the derivative segment is reaching frenzied levels, close to Rs 2 lakh crore mark as the expiry day of the November series draws closer.



The low put-call ratio, close to 1 means that the cushion of short-covering will not be available if the correction continues. High open interest in stock futures is also another concern. FIIs took an ambivalent stance last week, buying in some sessions and selling in others.



Last week\'s sell-off has pulled the 10-day rate of change oscillator deep in to the oversold territory. The relative strength oscillator has also declined in to bearish zone. But there is no divergence or reversal yet in these indicators to indicate a possible reversal. There is, however, only a slight dent in the weekly chart with the weekly rate of change oscillator still above the zero line implying that the medium term trend continues to be positive.



The Sensex reversed lower from the intra-week high of 20,380 to fall to 19,504 on Friday. There is no room for doubt now that the move that began from May 25 trough is now complete. The index has already retraced one-third of this move when it hit the low of 19,504, completing the minimum retracement requirement. The movement of the Sensex over the ensuing weeks can be thus,



Upward reversal from 19,500 or 19,141 will mean that the medium-term outlook remains positive for the index. It can spend the rest of the year moving between 19,000 and 21,500 before attempting to move higher in the New Year.



The medium-term outlook will be marred on a close below 19,000. Such a move will mean that decline to 18,500 or 17,900 is possible before a rebound.



Since the Sensex spent an inordinate time struggling to get above 18,000, that is the level that long-term investors should concern themselves with.



Weekly close below this level will imply that the entire up-move from March 2009 is being corrected.



The Sensex is halting at short-term support at 19,500. Decline below this level can drag the index to 19,318 or 19,141 in the near-term. However it is likely that the index bounces in the early part of the week to 20,125, 20,315 or 20,500.



Short-term view will turn positive on a move beyond the third resistance while inability to move above the first will result in decline to 19,000.




News From: http://www.7StarNews.com

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