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B. Krishnakumar

Nifty (1779.75)

Preferred View: As anticipated, the market sentiment remained bearish. Except for a strong rally on Tuesday, the Nifty ruled weak in the remaining three days of the week. As observed in earlier weeks, the 1830-level is a crucial reference point for the Nifty. Only a move past this level would impart strength.

The recent price patterns indicate that the weekly cycle has turned weak. The index is likely to remain either range-bound or slide to lower levels in the near term. This trend would continue till such time the weekly cycle turns positive. On the daily charts, the recent correction has helped the index move out of the overbought region.

The Nifty could move to oversold zone shortly on the daily charts. This could trigger a short-term rally. The underlying strength and duration of the rally would determine if it is the first leg of a new upward trend or just a correction to the earlier decline.

The recent price action indicates that the Nifty is likely to seek lower levels after a short-term correction. A test of the support zone of 1745-1765 appears likely. On the upside, the 1815-level is the first resistance level for the Nifty, followed by the crucial 1830-level.

Comment: The stock market was flooded with the flow of quarterly earnings reports. The performance of Ranbaxy and Satyam does not appear to have enthused market participants. Both the stocks ruled weak since the announcement of the quarterly performance. The sustained firm trend in the international crude oil price continued to have a negative influence on market sentiment. Investors may look for opportunities to book profit and reduce exposures, especially in index and large-cap stocks.

Alternative view: Though the continuation of the 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 upward trend after completion of the expected short-term drop. This view would be negated if the Nifty drops below 1735.

Sensex (5641.06)

Similar to the Nifty, the trend in the Sensex, too, was bearish last week. The movement in the index was in line with expectations. The index dropped below the negative trigger level of 5640. A sell signal has been triggered in the weekly charts. This is likely to pull down the index. A drop below 5570 would pave the way for a drop to the 5400-5450 range.

Comment: A bearish trend was prevalent in the mid-cap as well as the large-cap stocks last week. Though a few mid-cap stocks managed to rule firm, several others ruled weak or were confined to a narrow range. With the weekly cycle having turned negative, it could take a while for the index to resume the upward move. Only a move above 5810 would reinstate bullishness.

As observed last week, the outlook for quite a few mid-cap stocks and index stocks remains bullish from a longer-term perspective.

The positive momentum witnessed earlier is likely to resume once the expected correction is over. Investors who have entered at lower levels may take partial profits now or at least tighten the stop loss closer to the prevailing market levels.

S&P CNX IT (2606.9)

The movement in the index was not quite in line with expectations. Contrary to the positive outlook, the index ruled weak and also dropped below the negative trigger level of 2635. As a result, the trend has now turned weak. The index is likely to drop to the 2550-2555 range in the near term. A drop below 2540 would impart further weakness. Traders with short positions may have a stop-loss at 2640.

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