The Hindu Business Line : Rally likely ahead of imminent correction

Preferred view: A bullish trend prevailed as anticipated last week. The index ruled firm and also moved to the target zone of 2975-3000 that has been mentioned in recent weeks.

We continue to favour a short-term positive outlook for the market. The move past the positive trigger level at 2920 has resulted in a sharp upward move.

As observed in the edition dated January 1, the index is headed towards the next target zone at 3100-3150.

A significant corrective phase involving price declines and/or flat trends for a protracted period appears overdue and may materialise once the Nifty gets closer to the target zone.

For the moment, investors may continue to hang on to their long positions with appropriate stop-loss in place. The positive outlook for the Nifty would be negated on a close below 2925.

Comments: Though the trend remained positive during the week, the bullish undertone gathered momentum on Friday.

The recovery in the stock markets across the globe was instrumental in bolstering domestic market sentiment.

It was also positive to notice that the domestic market did not wilt under the pressure of weakness in global markets witnessed on Tuesday. The stock market also appears to have shrugged off the impact of the rise in crude oil prices.

After a sharp rally in the earlier weeks, sugar sector stocks went into a corrective phase during the week.

It was the turn of stocks from the engineering and hotels spaces to attract market attention during the week gone by. Indian Hotels, EIH, Hotel Leela, Larsen and Toubro, Siemens, BHEL and ABB were prominent gainers.

As observed in the earlier weeks, a significant correction may be just around the corner. The recent recovery from the low of 2783 may well be the start of the final leg of the present phase of the upward trend.

We expect a corrective phase sooner than later. This view would be negated on a close above 3200.

This would indicate that the recent upward is getting extended and the market could seek higher levels.

SENSEX (9871)

The trend remained positive as expected last week. The index also moved closer to the target zone of 9950-10000 that has been mentioned in earlier weeks. The index appears to be headed towards the next target zone of 10100-10200. The recent rally has pushed the indices to an overbought zone. Investors need to get cautious, as a corrective phase may be just round the corner.

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