The Hindu Business Line : Critical levels beckon Nifty

Preferred view: The market action was devoid of any trend during the week gone by. Contrary to the expectation of an uptrend, the index was stuck to a trading zone.

The inability of the index to move past the crucial resistance level at 2830-2840 is a cause of concern.

Unless the index closes above 2850, the chances of the resumption of the upward trend appear bleak.

The recent price action indicates the possibility of a bearish trend extending to the following week as well.

The Nifty could drop to the support zone at 2740-2750. Nifty's ability to hold above this level would be crucial for the medium-term trend to remain bullish. A close below 2730 would have negative implications and a possibility of a decline to the 2550-2600 range cannot be ruled out.

Investors may consider at least partial profit-booking in long positions in the Nifty and other index stocks. Stop-loss for long positions may be placed at 2730.

Though the recent price action has not negated the long-term bullish outlook for the market, a breach of the crucial levels mentioned above would result in a significant delay in the resumption of the long-term uptrend.

Comments: After a strong upward move on Monday, the market action in the next three days was marked by a high degree of volatility.

On Friday, the trend turned bearish after a buoyant opening and a firm trend that lasted in the early part of the day.

The market attention during the week was, however, focused on mid-cap stocks.

Quite a few stocks managed to record sharp gains during the week. Stocks from the sugar sector found buying interest.

Prominent amongst the gainers were companies such as Sakthi Sugar, Ankur Drugs, Shree Renuka Sugar, Rajshree Sugars, 3i infotech and D.S.Kulkarni. The outlook for most of the stocks that have logged gains remains positive. Intermittent correction could be used to take exposures in these stocks.

SENSEX (9256)

The movement in the Sensex was not too different from that of Nifty. The trend turned bearish on Friday and the index declined by about 115 points.

The near-term outlook appears bearish and the occurrence of a "Gravestone Doji" pattern in the weekly candlestick chart is a cause of concern.

A drop to 8850-8900 appears likely. A close below 9080 would confirm this view. Only a close above 9500 would reinstate the positive trend.

CNX IT (3860)

The index fell shy of the target zone of 3950-4000. After hitting a high of 3940, the trend turned bearish on Tuesday.

The short-term outlook is bearish and a drop to 3750-3760 appears likely. The bearish outlook would be in force as long as the index rules below 3960.

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