FAIREGROWTH: 07/01/2008

Sensex (13469.8)
The dark clouds parted a little and melting crude prices sent a ray of hope to the hassled equity markets last week. Sensex rejoiced by gaining over 1,000 points in the last two sessions. Market participants will, however, switch from watching crude prices to focus on the high-octave political drama that will unfold in New Delhi next week as the Central Government seeks a confidence vote from the Lok Sabha.
After weeks of pointing southwards, there is a mild bullishness apparent in the charts this week. In fact, we have not seen two consecutive days of such strong closes since May this year. Volumes were muted in both cash and derivatives segment implying that the buying was spurred by bottom-fishing by a select few.
Sensex reversed from the intra-week trough at 12514 last week. As we have been reiterating, the confluence of targets and support between 12300 and 12800, make it a crucial support zone. Mild bullishness is evident in the oscillators’ chart too. Weekly oscillators are diverging positively while the 10-day rate of change oscillator has moved in to the positive territory. A bullish hammer is also evident in the weekly candle-stick chart that could portend a medium-term reversal.
But these are early days yet and the steep crash from 17,735 has ensured that the Sensex has to do a lot more work before it can pull itself to safety. The pattern since the 12,822 trough appears to be a sideways correction in the down trend that could be an irregular flat or a triangle. It is, however, yet to be determined if this move is part of the market’s base building effort before the next intermediate term rally or if it is a temporary halt in the down move from 17735.
The immediate test for this rally will be in the zone between 14000 and 14250. A reversal from here would mean that a decline towards 12500 would be on the cards again. The medium-term outlook will turn positive on a close past 15300. If the trough formed last week at 12514 is penetrated in the near-term, it would mean that the C wave from the 17735 is extending and can drag the index lower towards 11800 or 11200.
In other words, though the markets appeared gung-ho over the last two trading sessions, the near term trend is only sideways with a strong resistance at 14066, 14233 and 14677. A reversal from either of these levels will pull the index lower towards 12980, 12500 or 11800.
Since we are faced with a confidence vote next Tuesday, the stock markets are likely to be volatile in the run-up to and following the motion. A range between 13000 and 14000 is likely before the trust vote is placed before Parliament. A euphoric reaction on the UPA winning the vote will give the upper targets at 14677 or 15330. If the vote results in the dismissal of the Government, a knee-jerk reaction can give the lower target to the index at 12160 or 11800. Needless to add, that long-term investors should use such a plunge to go on a shopping spree.

NIFTY :-

Nifty formed a low at 3790 before moving higher last week. The current short-term up-trend can take the index to 4157 or 4297. The index faces strong resistance in the zone between 4200 and 4400 and traders should book some profits on their long positions in this band.
A reversal from 4200 will drag the index lower towards 3901 or 3790 once again. For the medium-term, we continue to envisage a sideways range between 3700 and 4400. A decline below 3700 will accentuate the negative outlook and pave the way for a decline to 3596 or 3279.