The Hindu Business Line : Drop in indices on the cards

Preferred view: Contrary to expectations, a bearish trend prevailed during the week. In the process, the index dropped below the crucial trendline that has been referred to in earlier weeks.

The break above this trendline proved to be short-lived, as the Nifty closed below this line on Thursday.

Though we still favour a move to the 2975-3000 as the preferred view, recent price patterns suggest that the index could drop to 2790-2800 before the resumption of the next leg of the rally. The view of a rally to 2975-3000 would be negated only on a close below 2720.

An upward move would face resistance at 2900-2910. A close above 2910 would lend weightage to a move to the upper target zone.

Comments: The market appears to have been disappointed with the quarterly performance reported by Reliance and Infosys.

The disappointment was manifested in the form of a fall in the share price of both these companies and the benchmark indices on Thursday. Though there was some recovery on Friday, the overall price patterns do not appear positive.

Though the frontline stocks took a knock, the market appetite for mid-cap stocks appeared unsatiated.

Quite a few stocks from the mid-cap space logged sharp gains during the week. Companies from the sugar sector continued to attract market interest. KCP Sugar, Sakthi Sugar, Dhampur Sugar and Kothari Sugar were prominent amongst the gainers from the sugar industry.

Market interest was also evident in stocks of companies such as Celebrity Fashions, Bartronics and Educomp Solutions that got listed during the week. As observed last week, a significant correction may be just around the corner. A move to 2975-3000 or a close below 2720 would indicate the start of this corrective phase. Investors need to resort to periodical profit booking and also be selective in stock picking.

SENSEX (9375)

As opposed to the expected bullish trend, the market was weighed down by bearish sentiment. Though this bearish trend has not negated the earlier view of a rally to 9950-10000, the recent price action indicates the possibility of a delay in the progress towards this target. It is also positive to notice that the index managed to hold above the negative trigger level of 9300 mentioned last week.

The recent price pattern indicates that the index is likely to drop to the 9000-9020 range before the next leg of the rally resumes. A close below 9300 would confirm this view; a close above 9610 would indicate that the next leg of the rally to 9950-10000 is underway.

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