The Hindu Business Line : Index View

After touching a low of 2955, the index staged a recovery on Monday. Though there is still a case for a rally towards our target zone of 3100-3150, the near-term trend appears weak.

A drop to 3020-3030 appears likely. The long-term trend would remain positive as long as the index holds above 2950. A breach of the 3000-mark would be an early sign of medium-term weakness, a close below 2950 would confirm such as possibility.

There is a strong overhead resistance zone at 3075-3085. A close above 3090 would help the index get to the long-term target zone at 3100-3150. Investors need to get into a cautious mode and take profits on a regular basis on uptrend.

Comments

Though the Nifty ruled firm in the early part of the week, the failure to move past the resistance zone at 3075-3085 is a cause of concern. With crude oil prices firming up, the index could be under pressure in the near-term. The Union Budget that would be presented on Tuesday will also influence market sentiment.

As that a bearish trend has prevailed in March over the past few years, there is a possibility that such an event would be repeated this year as well. The recent developments and the chart patterns also point to such a denouement. Investors may tighten stop-loss levels and also consider at least partial profit booking on rally.

Sensex (10201)

The index sought support at the anticipated support zone at 9850-9900. The recent price action has resulted in the formation of a bearish `Evening Star' pattern in the Candlestick charts. Though the Sensex has not traced out a perfect text-book example of this pattern, it would qualify as a close second. The near-term outlook is not positive. A test of 9950-9980 appears likely. A close below 9800 would impart further weakness.

CNX IT (3916)

The index has been confined to a 250-point trading zone in recent weeks. The price patterns indicate the possibility of a drop to the support zone at 3800-3820. Traders with a high-risk appetite may consider short positions with a stop-loss at 3960. Only a close above 4030 would reinstate a positive outlook.

S&P CNX 500 (2645)

The short-term outlook for the index appears positive. A move towards the target zone of 2750-2800 appears likely. Though the short-term outlook appears positive, the waning momentum behind the rally in the past few weeks does not convey a healthy sign. The positive outlook will be in force as long as the index holds above 2540. A close below 2540 would result in a drop to 2400-2420.

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India Cements (Rs 136)

The price movement during the week was devoid of any significant trend in either direction. The share price was confined to a narrow trading range. This, however, has not negated the positive view expressed last week.

The stock appears on course to move to the next target zone of Rs 165-170. As observed last week, the positive outlook would be negated on a close below Rs 120. Hold invested with a stop-loss at Rs 120. Investors may consider fresh exposures on the evidence of support at Rs 122-125, with a stop-loss at Rs 119. A drop blow Rs 119 would warrant liquidation of holdings.

Hindustan Lever (Rs 243)

It is quite amazing to notice the way the price patterns have unfolded in conformity with the Elliott Wave theory. The stock went into a major corrective phase since February 2000. The high recorded in that month marked the end of Wave 1 in Elliott Wave parlance.

The stock completed Wave 2 at the low of Rs 104 in August 2004. The fall from the high of Rs 325 in February 2000 to a low of Rs 104 was traced out in a classic "Double Zig-Zag" pattern. If this view is valid, the stock appears to have commenced the explosive Wave 3, which could push the stock past the earlier high of Rs 325. Long-term investors may accumulate the stock on declines, with a stop-loss at Rs 204. Considering the share price has run-up sharply in the recent weeks, a corrective phase could be round the corner. Such dips would be an opportunity to take equity exposures.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Opinion and price targets are based on the Elliott Wave Analysis. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop-loss level is breached. There is a risk of loss in trading)

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