The Hindu Business Line : Positive short-term outlook

Preferred view: The market action was in line with expectations. After moving to the short-term resistance zone at 2500-2510, the index turned weak since Tuesday.

As anticipated, the drop below 2430-2440 resulted in a sharp slide. The index managed to, however, hold above the crucial support at 2360-2370.

The short-term outlook is positive. The slide witnessed in the past few days has pushed the index to an oversold region. An upward correction to this slide would be in order. The index could move to the first resistance zone at 2480-2490.

It remains to be seen if the momentum is strong enough to push the index past this resistance zone and take it up to the next resistance at the 2530-2530 band.

Irrespective of where the Nifty meets resistance, it appears that there would at least be a re-test of the recent low of 2362 recorded on Thursday.

A close below 2350 would have negative consequences for the Nifty. This could pave the way for a decline to 2290-2300.

The price movement in the next few days would be critical in determining the near-term trend.

Comments: The weakening of the Indian Rupee in relation to the US Dollar dented the stock market sentiment.

The weakness across key global markets did not help the cause either. That FIIs turning out to be net sellers during the week added to the woes.

There was, however, respite to the persistent slide on Friday with the key market indices managed to stage a sharp recovery

Long-term outlook: We continue to favour a long-term bullish outlook for domestic stock markets. The recent slide appears to be a part of the much-awaited and much-warranted correction to the rally that commenced in April 2005. Except for sideways price action, the market has not seen any significant correction to the rally that ended on October 5.

The "principle of alternation" prescribed in the Elliott Wave theory calls for a sharper decline this time around.

According to this principle, a corrective pattern would not be similar to the earlier pattern both in terms of price and time consumed.

As the earlier correction (during January-April 2005) turned out to be a prolonged sideways affair, it is only likely that the next leg of the correction be a sharp and swift move.

The recent slide therefore fits perfectly within the parameters of the "principle of alternation".

We expect the next leg of upward move to resume on the completion of the corrective phase.

Though it would, however, be slightly premature to call a potential support level or turning point for the market, we attach significance to 2290-2300 as the initial support level; the next level that will come into play will be 2150-2190.

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