Financial Daily from THE HINDU group of publications
Sunday, Feb 29, 2004
Markets - Technical Analysis
Near-term recovery likely
Preferred view: The market movement was in line with last week's expectations.
The index ruled weak as anticipated and touched a low of 1760 on Thursday. From a longer-term perspective, the index is still within the confines of the trading range of 1755-1935.
The index is still perched in the corridor of uncertainty that makes it difficult in arriving at a clear-cut view on the direction of the near-term move. Going by the recent price movement, there is a case for the completion of the decline from 1935.8 recorded on February 18.
The reversal of the index at 1760.5 on Thursday coincides with the Fibonacci 61.8 per cent of the earlier leg of decline from 2015 to 1756. With the market having reversed at such a crucial level, there is a case to expect a near-term recovery.
A study of the intra-day charts also indicates the completion of a five-wave impulsive Elliott Wave pattern. This can be construed as the completion of the last leg of decline that commenced at 2015 in early January.
The series of positive divergence between the indicators such as the Relative Strength Index (RSI) and MACD and the price bars in the intra-day charts also lends credibility to the near-term bullish view. A recovery to 1850-1860 range appears likely.
But only a move past 1860 would provide a thrust to the upward momentum. And a move past 1960 would confirm that the index is on its way to scale new highs.
Comment: The index has managed to hold above the negative trigger price level of 1750. This is the third occasion on which the Nifty has found support at about the 1755-1760 range. Holders of index stocks could remain invested with a stop loss below Thursday's low. A trailing stop loss may be employed in the event of a sustained up move.
Alternate view: While the near-term outlook appears positive, it is still unclear whether the index is set to resume the earlier bullish phase. A drop below 1750 would re-establish the bearish trend and could pave way for a drop to 1680-1700 range.
Preferred view: As anticipated, the index ruled weak and also dropped to the projected target zone of 5500-5550.
The near-term trend, however, appears positive. The index has sought support right at the target zone and staged a sharp recovery on Friday. The bullish pattern in index stocks lends support to the near-term positive outlook.
A move above 5750 would confirm the positive outlook and could push the index to 6080-6100 zone. Only a decline to less than 5500 would be a cause of concern.
Comments: The near-term positive outlook is supported by recent patterns in the indicators. The 14-day RSI has turned up at the 37-level on Thursday. This is a classic positive reversal pattern. Even as the index has dropped to the old range of 5550-5560, the 14-day RSI has made a relatively lower low. Besides, quite a few indicators including the MACD indicates are in the oversold region. A recovery or at least a relief rally may be on the cards.
S&P CNX 500 (1442.8)
Preferred view: As anticipated, a bearish trend prevailed during the week gone by. After touching a low of 1416.4, the index staged a recovery on Friday. The near-term outlook appears positive and a move to 1530-1540 range appears likely. However, only a close above 1560 would reinstate the bullish phase.
CNX IT (20599.2)
Preferred view: After dropping closer to last week's target zone, the index recovered ground on Friday. The near-term outlook appears positive and a move to 22200-22300 range appears likely. Remain invested with a stop loss at 19700.
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