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Sunday, Jan 25, 2004

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Markets - Technical Analysis

Nifty may scale a new peak

B. Krishnakumar

NIFTY (1847.6)

Preferred view: As anticipated, the index ruled weak and also dropped below the target zone of the 1830-1850 range that was mentioned last week. The near-term trend appears positive and a move to the 1940-1950 range appears likely. Quite a few factors indicate that the near-term trend has turned positive. Apart from the sharp reversal on Friday, the Nifty took support above the key negative trigger level of 1750.

Besides, the low of 1756 recorded on Friday has a close Fibonacci price relationship with earlier price swings. Quite a few price-based indicators have also reached an extremely oversold region. This again supports the view of a rally in the near term. The positive view would be valid as long as the 1750 level is not broken.

Comment: As expected last week, the index ruled weak and the reversal on Friday was also on expected lines. As mentioned last week, the index has staged a recovery after a short-term decline. The index recorded a higher high and high low on Friday in relation to the previous day. This is a positive development.

The occurrence of a "Bullish Engulfing" candlestick pattern lends further credence to the bullish outlook in the near term. As mentioned in earlier weeks, the market still has the potential to either test the recent high of 2015 or scale to new peak. A close above 1880 would be an early indicator of the progress towards the 2015 high. This view would be negated only if the index closes below 1850.

Alternative view: While the short-term view is bullish, it remains to be seen if the reversal on Friday lasts for a longer time frame. A drop below the Thursday's low of 1756 would be an early indicator of the continuation of the downtrend. Until the 1750 level is broken, the rally to the 2025-2050 range would be the preferred view.

SENSEX (5816.6)

Preferred view: The movement in the index was in sync with that of Nifty. As expected, the index ruled weak and also declined below the target zone of 5650-5700.

The Sensex, however, managed to stay above the negative trigger level of 5550 that was mentioned last week.

After a sharp slide during Tuesday to Thursday, the index reversed the downtrend by recording a hefty 223-point rise on Friday. The near-term trend is positive and a move to the 6050-6100 range appears likely.

Comments: While the index is expected to rule firm in the near term, it remains to be seen if the Sensex has enough steam to run up to the earlier mentioned target zone of 6300-6350. A move above 6135 would be an indicator of the strong momentum behind the upmove. This would also confirm the possibility of a rally to the 6300-6350 range.

Alternative view: Though the Sensex is expected to move up, a drop below 5550 would impart weakness. This could pave the way for a prolonged weakness.

S&P CNX 500 (1494.4)

Preferred view: The index moved in line with last week's expectations. It ruled weak and the drop below 1500 level resulted in a further slide to the next target zone of 1400-1420.

After touching a low of 1418 on Thursday, the index staged a sharp upmove on Friday. The short-term outlook remains bullish and the earlier view of a rally to the 1680-1700 range is still valid. A move above 1550 would be an early indicator of the rise to the 1680-1700 range.

CNX IT (22838)

Preferred view: The index ruled weak and took support at the target zone of 21000-21500 that was mentioned last week. As expected, the index has also staged an upmove on Friday.

The near-term trend appears positive and a move to the 23600-24000 range appears likely. A close above 24200 could pave the way for a rally to 26000.

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