The Hindu Business Line : Short-term bullishness in indices likely

Preferred view: The index ruled weak in line with last week's expectations. Imposition of margin call and selling by local funds triggered a sharp decline last week. The recent downtrend appears complete and the near-term trend has now turned positive. A close past 1635 would help the index move towards the next target range of 1700-1750. Only a close below 1540 would negate the positive outlook.

Comment: The movement in the 14-day RSI also confirms the short-term bullish view. The RSI has turned up at the crucial bull market support level of the 50-52 range. Interestingly, the RSI had earlier staged a recovery at the same range of 50-52 at a much lower bottom of 1471.

This indicates that despite the recent rally, the RSI is getting into an oversold mode at the support level of the 50-52 range recorded earlier. This a classic positive reversal pattern normally witnessed in a bullish market. This is a healthy development and indicates the index is scheduled to resume the uptrend.

Alternative view: Though short-term uptrend is the preferred view, a close below 1540 would blunt this outlook. This would lead to a drop to the next support level at the 1450-1470 range.

SENSEX (4925.3)

Preferred view: As expected last week, a bearish trend prevailed and the index managed to stage a recovery on Saturday. The index dropped below the initial support level of 4920-4950 and staged a recovery at a crucial support level of 4850. The near-term trend appears positive. A close above 5170 would confirm the positive outlook and could pave the way for a move to the 5250-5275 range.

Comments: Though the negative divergence between the 14-day RSI and daily price chart is a cause of concern, the index appears to have the potential to move to higher levels. While a close below 4840 would negate the short-term positive outlook, a close below 4580 would impart prolonged weakness.

Alternative view: At the moment, only a close below 4850 would blunt the weak outlook. This could push the index to the next support level at the 4590-4600 range.

S&P CNX 500 (1254.3)

Preferred view: The movement in the index was in sync with other major indices. After a weak trend, this index, too, settled at higher levels on Saturday. After touching a low of 1229.7, the index managed to settle at higher levels on Saturday. The near-term trend appears positive. A move above 1300 would confirm the positive outlook and could push the index to the 1350-1400 range. The formation of a bullish "Piercing Line" pattern in the Japanese candlestick chart supports the short-term bullish view.

Comments: After a sharp rally in the early part of the week, quite a few mid-cap stocks turned weak on Thursday and Friday. They managed to recover ground on Saturday. The outlook for companies such as CESC, IVRCL Infrastructure, Bata India and Petron Engineering appears positive. The long-term uptrend would remain in force as long as the index stays above 1160.

CNX IT (19117.5)

Preferred view: Contrary to expectations, the index ruled weak. It failed to move past the positive trigger level of 20413 that was mentioned last week. The weakness in frontline technology stocks such as Satyam, Infosys, NIIT and Wipro imparted weakness. The near-term outlook remains positive. A close above 20450 would confirm the positive outlook. The positive view would be in force as long as the index stays above 18950.

NASDAQ COMPOSITE (1930.3)

Similar to the previous week, the index remained range bound and lacked any sort of momentum on either side. The short-term trend hinges on the movement in the next few days. An upward sloping wedge pattern appears to be taking shape in the daily chart. This is a bearish pattern and a drop below 1870 would impart weakness. Only a close above 2000 would result in the resumption of uptrend.

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