The Hindu Business Line : Short-term uptrend likely

Preferred view: The market remained range-bound during the just-concluded week. The Nifty remained within the confines of the positive and negative trigger levels of 1920 and 1750 respectively. The recent price pattern indicates further upside potential for the Nifty.

As mentioned in earlier weeks, the positive view will remain in force as long as the Nifty stays above the 1750 level. The formation of a double-bottom pattern at 1757 level lends confidence to the positive outlook.

Immediately after the completion of this pattern, a Bullish Engulfing pattern was completed in the Japanese Candlestick chart on Wednesday. Key indicators such as MACD and 14-day Relative Strength Index are still in the oversold territory. These factors indicate that there is still some room on the upside.

Comment: The Nifty fluctuated in the 1757-1847 range during the week. After a sharp slide on Tuesday, the sentiment turned positive on Wednesday. After recording a decline on Thursday, the Nifty closed on a positive note on Friday.

The price action in the following weeks would provide further clues about the near-term trend. A move past 1920 would be the first sign of re-establishment of the positive trend. And, a close above 1960 would confirm that the Nifty would at least retest the earlier high of 2014.

Alternative view: Though the near-term outlook appears positive, a decline below 1757 would imply failure of the bullish double-bottom pattern. This would impart prolonged weakness. Existing holders of index stocks could remain invested with a close stop loss. A trailing stop loss may be used in the event of a sustained uptrend.

SENSEX (5786.35)

Preferred view: The Sensex, too, was confined to a relatively narrow trading range last week. It touched a high of 5820 and a low of 5550 during the four trading sessions of the week. The index managed to hold above the negative trigger level of 5565.

Though it touched this level during intra-day trading, the Sensex managed to recover ground and close above this level on Tuesday. The near-term trend appears positive and a move past 6035 would have bullish implications.

Comments: The formation of a Hammer pattern followed Bullish Engulfing pattern in Japanese Candlestick chart is a positive development. The completion of a double-bottom pattern in the classical western chart is another positive development. A drop below 5550 would have bearish implications.

The index is likely to face resistance at the downward sloping trend line connecting the highs recorded at 6248 and 6030. A break above this level would be a first sign of strength. And a move above 6035 would lend further credence to the bullish outlook.

Alternative view: Though the near-term trend appears positive, a drop below 5550 would blunt this view. Breach of 5550 would also result in the failure of the bullish double-bottom pattern formed at the 5565 level. This could result in a drop to the 5150-5200 range thereafter. For index stocks, stop-loss for long positions may be placed a few ticks below the lowest intra-day low recorded in the past four trading sessions.

S&P CNX 500 (1466.6)

Preferred view: The index managed to rule above the bearish trigger level of 1400 that was mentioned last week. The recent price pattern indicates the possibility of a short-term uptrend.

The bullish price pattern in quite a few index constituents including ICICI Bank, Hero Honda and IPCL confirms the positive outlook. The immediate resistance is at 1490, followed by 1555. A break above these two levels would impart positive trend.

CNX IT (21700.9)

Preferred view: After a weak trend on Tuesday, the index recovered ground and closed on a firm note on Friday. The near-term trend appears positive and a move to the 23250-23300 range appears likely. Only a close below 20700 would negate the short-term positive outlook.

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