• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Krishnakumar

NIFTY (1795)

Preferred view: As anticipated, the market passed through a corrective phase last week.

The zone of 1830-1840 acted as a resistance area and the Nifty failed to move past the range. After a sharp drop in the first two trading sessions, the index recovered ground on Thursday.

The recent price patterns indicate that the index is yet to complete its corrective phase.

Based on the daily price chart, the Nifty appears to have just commenced the downward cycle. There appears to be more room to be covered on the downside.

A drop to the support zone of 1745-1765 appears likely. Such a view is also supported by the patterns in the long-term charts. In the weekly charts, the index appears to be on the verge of signalling a weak trend.

A sustained drop in the Nifty this week could trigger a bearish signal in the weekly chart as well. This would have more prolonged bearish implication for the index.

The behaviour of the key market indicators is also a cause of concern.

The Relative Strength Index (RSI) in the weekly charts has reversed direction after moving up to the crucial bear market resistance level of 60-70 range. A break above 70 is required to lend strength to the overall positive view of the market.

The price action this week could provide critical clues about the near-term trend in the market.

Comments: The flow of robust earnings performance by technology sector stocks was the highlight of the week. Quite a few software stocks including heavyweights Infosys, Satyam, Wipro and TCS logged sharp gains for the week.

The relatively firm trend in the technology sector stocks was helpful in keeping the indices at bay.

The firm trend in the price of crude oil in international market could impart negative sentiment. After a sharp upward spike, the price of key metals has turned weak recently.

The future trend in key metals such as steel, copper, aluminium and zinc would have major impact on the domestic market mood. Investors may look for opportunities to book profit and reduce exposures, especially in index and large-cap stocks.

Alternate view: Though the short-term weakness is the preferred view, a close above 1830 would impart strength.

The long-term outlook remains bullish and the index is expected to resume the uptrend after completion of the expected short-term drop. This view would be negated if the Nifty drops below 1735.

SENSEX (5686.73)

Similar to the Nifty, the Sensex, too, ruled weak as expected last week. The index dropped below the negative trigger level of 5690, which confirms the onset of a corrective phase.

A drop below 5640 would impart weakness and could pave the way for a drop to 5400-5450 range. A fall below 5400 would, result in a more prolonged correction.

Comments: Stocks across almost all market segments took a knock last week. The sharp rally in the recent weeks had pushed quite a few stocks into the overbought region both in the daily and weekly charts. The correction for such a swift move may take a while. The outlook for quite a few mid-cap stocks and index stocks remains bullish. After a short-term dip, the recent buoyancy is likely to continue.

Those who have entered at lower levels may take at least partial profits now and contemplate fresh exposures at lower levels.

S&P CNX IT (2659.6)

After the correction on a couple of days, the index turned bullish on Thursday. The short-term trend appears positive and a move to 2725-2730 range appears likely.

This view would be valid as long as the index stays above 2635. A drop below this level could push the index down to 2550-2560 range.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Bullish equities — Pan the surface, mine the depths

Copyright © 2004, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line