The Hindu Business Line : Index outlook

The index dropped to the support zone at 3020-3030 and staged a recovery on Tuesday. The bullish trend that prevailed in the subsequent days helped the index move to the target zone of 3100-3150 that has been mentioned over the past few months.

We had indicated that there might be a significant corrective phase once the index reached our target zone at 3100-3150. The momentum behind the recent rally trend points to the possibility of an extension of the upward trend.

This means the expected significant corrective phase may be delayed and the market could seek higher levels with minor corrections.

Target upgrade

The revised targets for the Nifty will be 3450-3500. A close past 3200 will be an early indicator of the extension of the long-term upward trend. In the near term, the index is likely to get into a short-term corrective phase at the resistance zone at 3220-3230. The expected corrective phase may not be as pronounced as anticipated earlier in the edition dated January 1. After a brief correction, the index could gear up for the next move towards the target zone of 3450-3500.

Comment

The indices are now at a critical stage. Though the recent momentum has thrown open a new possibility of an extended bullish phase, it would be better to wait for confirmation. A failure to close past the 3200-mark will indicate that the earlier view of a significant corrective phase setting in could gain currency.

Either which way you look at it, the markets are headed towards a correction phase. The uncertainty pertains to the timing, degree and nature of the expected decline. If the index manages to move up to 3220-3230 range and turn direction at that juncture, the corrective fall would be of a relative smaller degree. Else, we could see the Nifty drop to 2400-2450 range as anticipated earlier.

Sensex (10595)

The index ruled firm and also edged past the crucial trigger level of 10700 that was mentioned earlier (edition dated January 1). The index failed to close above this level and turned weak on Thursday. The short-term outlook is positive and a move to 10700-10720 appears likely. A close above this level would indicate that the index is headed towards 11500-11700. The price movement in the next few weeks would provide clue about the medium-term outlook for the index.

CNX IT (4017)

The anticipated bearish trend did not materialise during the week. The index moved up sharply on Wednesday and turned weak in the last couple of trading sessions. The short-term outlook remains weak. A drop to 3800-3820 appears likely. Short positions may be considered on intra-day rally, with a stop-loss at 4100. Only a close above 4120 will reinstate bullish momentum.

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