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B. Krishnakumar

NIFTY (1601.6)

Preferred view: The movement in the index was in line with expectations.

The trend remained firm and the Nifty also moved to the target zone of 1580-1585 range. The price action in the past few weeks indicates that a significant correction may just be round the corner.

Key technical indicators such as the 14-day RSI and the Commodity Channel Index (CCI) indicate the possibility of at least a short-term weakness.

It remains to be seen if the anticipated correction would mark the beginning of the next round of decline.

A drop below 1510 would be an early indicator of the onset of the next leg of downward trend. This would result in a short-term weakness that could push the index to 1470-1475 range.

From a long-term perspective, the possibility of a re-test of the low at 1282 is still valid. This view would be negated only if the index closes above 1660.

Comment: The market sentiment turned positive last week. This helped the index settle at higher levels at the end of the week. The revision in the earlier proposed turnover tax provided the necessary thrust to the market.

The flow of encouraging corporate results also helped the cause. Reliance Industries, Tata Steel and ONGC were primary contributors to the firm trend in the Nifty.

The upward move did not, however, have sufficient momentum to help the Nifty move past the trading range that it has been confined to. The sub-normal rainfall in quite a few parts of the country could be a significant damper and could weigh on the market sentiment.

Alternative view: Despite the firm trend witnessed last week, the index is still confined to a narrow range. A breakout from this range is pre-requisite for the emergence of any meaningful trend. As observed in previous weeks, the medium-trend is bearish and only a move past 1750 would impart positive momentum.

This would indicate that the decline that commenced at 2014 in January 2004 has been completed at the recent intermediate low of 1292.

SENSEX (5073.3)

Preferred view: As anticipated, the index ruled firm and also managed to move past the target zone of 4995-5015. The recent chart patterns indicate that a short-term decline or a sideways price action may be on the cards. The movement in CCI and 14-day RSI confirm this possibility.

The RSI has moved to the resistance level of 60-62 band. This could trigger a decline or a correction in the near term. Besides, a bearish "reverse divergence" is visible in the daily chart. The 14-day RSI has now moved to higher peak in relation to the earlier swing high of 5164 (recorded on May 26). The Sensex has not, however, broken past the earlier high of 5164. This is a classic reverse divergence pattern having negative implications.

Alternative view: While the index is expected to test 4228 level, a move past 5500 would be an early sign of the reversal of the downtrend. As mentioned in the past, the expected weakness will not, however, negate the long-term positive outlook for the market.

S&P CNX 500 (1329.6)

Preferred view: The movement in the index was in sync with other indices such as Nifty and the Sensex. A positive trend prevailed last week, and the index managed to settle at higher levels. With the index reaching a short-term overbought region, a correction may be in the offing.

CNX IT (2185.2)

Preferred view: The buoyancy that was evident in other indices was not to be seen in the case of the CNX IT index. It remained stuck in a narrow range. A short-term decline could materialise shortly. A drop below 2140 would be an early indication of the onset of the downward move.

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