The Hindu Business Line : Short-term correction round the corner

Preferred view: After a jolt in the earlier week, the market sentiment turned bullish during the week gone by. The Nifty moved past the psychological 2600 mark and closed above this level on Friday. The index managed to hold above the crucial support level of 2450 and also moved past the resistance level of 2570.

This imparted strength and helped the Nifty scale a new high of 2633.9 on Thursday. Though the sentiment remained bullish, there are signs of weariness in the momentum behind the recent rally. The emergence of negative divergence between the movement in the popular indicators and the Nifty is a cause of concern.

The short-term trend appears bearish and a drop to the 2550-2560 range appears likely. The 2550 mark is a crucial support level, the breach of which could lead to a slide to the 2500-2510 range. Only a close below 2450 would warrant a reassessment of the long-term bullish outlook.

Comments: Aided by the firm trend in Reliance Industries and ONGC, in particular, the Nifty managed to seek higher levels during the week. The bullish momentum was, however, not all pervasive. Not too many stocks participated in the rally outside of the Nifty universe.

A sharp correction was witnessed in quite a few mid- and small-cap stocks. The lack of participation of mid-cap stocks in the market rally is not a healthy sign. Quite a few index stocks appear to have been pushed to the overbought zone. A short-term correction may be just round the corner.

On the upside, there are quite a few resistance levels bunched together at close intervals. The index would find it difficult to wade past these levels at 2620, followed by 2640 and 2650. Only a close above 2650 would be a sign of strength.

Sensex (8634.5)

Preferred view: The index ruled firm and moved past the 8600 mark during the week. The near-term outlook appears weak and a drop to the 8350-8400 range appears likely. The appearance of a "hanging man" pattern in the Japanese candlestick charts is a bearish sign; only a close above 8780 would impart bullishness. At the moment, it would be a safer strategy to take profits on a rally and exposures in fundamentally sound companies may be considered on weakness.

CNX IT (3296.5)

The index moved past the resistance level at 3290. Though this is a positive signal, the index might turn weak before resuming the upward move. A drop to the 3175-3200 range appears likely. A close below 3260 would confirm the short-term bearish outlook; a close above 3350 would be a strong positive signal.

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