The Hindu Business Line : Nature of recovery is a question mark

The Nifty notched up a gain of about 100 points during the truncated trading week. It is positive to notice that the index has managed to hold above the crucial support zone of 2270-2280 that has been highlighted in the earlier weeks.

The deep oversold conditions, along with the ability to hold above the crucial support levels, were good enough reasons to spark a rally.

The near-term outlook remains positive and a move to the resistance zone at 2460-2470 appears likely.

A close above this resistance zone would help the index move to the next target zone of 2530-2550. It remains to be seen if the recent recovery is just a correction to the earlier fall or the start of fresh upward move.

Considering the recent price patterns, we would continue to hold the view that the recovery is part of a corrective rally.

The implication is that there could be a possibility of another leg of decline, which could either test or breach the recent low of 2307. From a short-term perspective, there is a case for the continuation of the rally.

Risk-averse investors may look to book profits on price rally. Those with a higher risk appetite may consider long positions with a stop-loss at 2359.

Comments: The trading action was truncated to two days owing to a clutch of holidays. The festive mood resulted in a relatively low trading volume. It, therefore, remains to the seen if the recent buoyancy is supported when trading volumes start pick up from next week.

Alternate view: There is a possibility that the recent recovery may well be the start of a fresh leg of the long-term upward move.

If this is the case, we could see the index moving to new historic highs without a hitch.

On the other hand, a reversal in the uptrend either at or below the 2560-2570 range would imply that our preferred view of another round of decline would be validated.

The price movement over the next few weeks would provide insights about the nature of the recent recovery.

SENSEX (8073)

The index staged a recovery and closed above the psychological 8000-point mark for the week.

The near-term outlook is positive and a move to the 8250-8280 range appears likely.

The price movement over the next few days would provide further clues about the nature of the recent rally. A close below 7610 would indicate that the index is headed towards the 7060-7160 range.

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