Index View For 04-09 to 09-09, 2006.

And the rally continues… Laboriously and tediously, piling one green tick on top of another, the Sensex is inching its way higher. The Indian markets showed remarkable resilience last week refusing to be buffeted by turbulence in the derivatives segment.

At the end of last week, the Sensex had gained 1.7 per cent. This is the sixth consecutive week in which the Sensex has closed in the green.

Profit booking was, however, evident in the mid-cap and small cap stocks. Both the BSE mid-cap index as well as the BSE small cap index moved sideways and closed almost unchanged for the week.

Both the mutual funds, as well as the FIIs turned net buyers last week. The peaceful expiry of the August contracts, the healthy rollover and the relatively low open interest in the September contracts indicate that there is no speculative froth in the derivative segment.

As per e-wave analysis, there are multiple counts at this juncture. That is usually the case with corrective waves, where the pattern becomes apparent only after its completion.

We have been sticking to the count that the move from 9875, which is the c wave from 8800, is still continuing. But the sideways consolidation seen over the last two weeks makes us put forward another very bullish count.

That is, a double zigzag formation was completed at 11619.8 on August 22. The subsequent move is an x wave, which will be followed by another strong upward spurt that takes the Sensex to a new high.

We will revert to this count if the Sensex races past 12200 in the next couple of weeks.

The oscillators in the daily chart are continuing to diverge negatively. This is due to the obvious lack of momentum in the short term. But the weekly momentum indicators are still looking good. The chart patterns are not giving any indications of a reversal yet. The Sensex achieved our intra week target of 11779 last week. The immediate upward targets for this week are 11845 and then 11951. Some profit booking can be expected in the 12000 to 12200 zone.

To sum up, the narrow range bound move seen over the last two weeks looks like a precursor to a strong upward surge in the Sensex. It is to be seen if the market can garner sufficient conviction to take the Sensex past 12200. We advocate caution till 12200 is crossed convincingly. It would be a good idea to take some money off the table, to be re-invested after the Sensex crosses above 12200.

Nifty

The Nifty hit an intra week high of 3452.3 before closing with a gain 51 points for the week. Nifty has the immediate upward targets of 3473 and then 3482 this week. The major medium term resistance will fall between 3500 and 3532. The outlook for the Nifty will stay positive as long as it stays above 3300. Traders can buy in dips with a stop at 3380. Fall below 3380 will point towards a short-term trend reversal.

Global Cues

At last, one can look back on a quiet week in the global markets. Falling crude prices assuaged the sentiment, as did a pause in rate hike by ECB and further signs of slowing economy in the US.

DJIA closed in a gung-ho mood at 11464.1. NASDAQ too had a very strong week, closing at 2193.1. Asian markets moved sideways.

Nymex crude for October delivery closed at $69.1. The trend is weakening substantially in crude. If the support at $67 is breached, it can fall to $60.