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B. Krishnakumar

Nifty (1931.1)

Preferred View: The index ruled weak as anticipated. The expected short-term bounce ahead of the downtrend did not, however, materialise.

The sharp decline witnessed during the week resulted in the breach of key support levels. In the process, the index has been pushed to extreme oversold levels on the daily charts.

Typically, a sharp technical pull-back would be a fallout of a steep fall in the index and its indicators. Though this may materialise, it would not imply that the index is set to resume the next leg of the upward move. A move above 1967 would be a short-term positive trigger as that would help push the index to the crucial resistance level of 2000.

The medium-term trend remains bearish and would remain so, as long as the index trades below the 2000 mark. On the downside, the immediate support is placed at the 1885-1890 range, followed by the 1840-1850 range. The index is likely to test at least the 1885-1890 range before any meaningful upward trend resumes.

There is a confluence of Fibonacci support levels at the 1847-1860 range. A breach of 1900 would be an early indicator that the index is heading towards the 1885 mark and a drop below 1895 would result in the test of the 1840-1850 range.

Comment: Except for a recovery on Thursday, the market sentiment was distinctly weak. A host of factors were at play behind the bearish trend that persisted last week. Expectations of a clamping down on the FII flow affected sentiment during the week. Rumours pertaining to identification of brokers responsible for the market crash on May 17, 2004 affected sentiment on Friday.

Alternative view: We have always maintained that the long-term trend is bullish. Though there is no change in that view, the recent fall has opened up the possibility of relatively prolonged-and-deeper correction.

This view would not gain currency if the index holds above 1750. A drop below 1750 would trigger such a prolonged correction that could pull the index down to the 1550-1575 range. The positive trend would be re-instated if the Nifty manages to move above the positive trigger level of 2060 on a weekly basis.

Sensex (6173.8)

The index ruled weak and also dropped below the projected target zone of 6300-6320. The immediate outlook would depend on the price movement in the next few days. A move above 6264 would impart short-term strength while a drop below 6130 would result in the continuation of the downward trend.

The immediate support level for the Sensex is placed at the 5870-5880 range. A drop below this range would have negative consequences. Investors holding profitable positions, especially in the Nifty constituents as well as other large-cap stocks may book at least partial profits or tighten their stop-loss.

Comment: The quarterly numbers have started trickling in with information technology heavyweights Infosys and TCS reporting their numbers last week. The improved performance turned to be of little consequence as it failed to arrest the slide in the market. The share price of these two companies did not witness any recovery during the week.

Alternative view: The short-term bearish view would be negated if the index moves above 6480. A drop below 5870 would result in a slide to the next support level at the 5640-5650 range.

CNX IT Index (2692.75):

The index dropped below the bearish trigger level of 2760 that was mentioned last week. This imparted weakness, pushing the index to a low of 2615 on Wednesday. The index has been oscillating in a narrow range over the past couple of days. A move past 2730 would impart strength while a drop below 2660 would have bearish implications.

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