The Hindu Business Line : Further weakness likely in Nifty

Preferred view: The market sentiment remained bearish during the week gone by. As anticipated, the index turned weak after registering a brief rally towards the resistance level of 2610-2620.

The index touched a high of 2592 on Tuesday and turned weak subsequently.

The near-term trend remains bearish and a drop to the 2430-2440 range appears likely.

The immediate resistance for the index is at the 2500-2510 range.

After a brief dalliance with this resistance zone, the Nifty could test the support zone at the 2430-2440 range.

A close below 2445 would result in a further slide to the 2390-2400 band.

Investors may liquidate long positions on intermittent upswings.

Comments: The stock market sentiment was weighed down by the bearish undertone witnessed across key global markets.

Even the better-than-anticipated quarterly performance of software giants such as TCS and Infosys failed to stem the decline.

From a technical perspective, there are quite a few interesting developments in the Nifty.

The recent slide has pushed the Nifty into an oversold zone.

Considering the possibility of a drop to the 2430-2440 range, the index would soon get deeper into the oversold zone.

A pullback or at least a relief rally may materialise subsequently.

Such a view is also supported by the reverse positive divergence between the 14-day Relative Strength Index (RSI) and the Nifty.

The 14-day RSI has breached the earlier low formed on September 22 while the Nifty is yet to do so.

This is a positive sign, as the indicator is getting into an oversold zone even though the prices are not making a new low.

There is also a potential "head-and-shoulder" pattern in the offing. This pattern would be completed if the Nifty drops below 2430, after the completion of a pullback or a relief rally.

The price movement in the near term would provide crucial information about the likely direction of the medium term trend.

SENSEX (8202)

Preferred view: The index ruled weak in line with expectations.

It also dropped below the bearish trigger level of 8400, leading to a further drop to the earlier-projected support level at the 8150-8200 band.

The recent correction does not appear complete and a drop to the 8000-8050 range appears likely.

Investors may reduce exposures on rally. Fresh exposures in fundamentally sound companies may be contemplated at lower levels, as the long-term trend is still bullish.

CNX IT (3317)

After a rally on Tuesday, the trend turned bearish over the last couple of trading days.

The near-term trend remains bearish and the index appears on course to move to the support zone at the 3220-3230 range.

Only a close above 3350 would negate the short-term bearish outlook.

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