The Hindu Business Line : Index Outlook

The index ruled firm and also moved past the target zone of 3450-3500 that has been mentioned in earlier weeks. The index did, however, turn direction right at the confluence zone of the resistance that has been arrived at using various technical parameters including the Fibonacci projections.

The index turned weak after touching a high of 3555.5 on Friday.

This high is just a few points short of the Fibonacci -161.8 per cent of the previous move from 1896.3 to 2669.2. The 161.8 per cent of this move, if added to the subsequent low of 2307.45, yields a target of 3558, which is not too far off from the high of 3555.5 recorded by the Nifty on Friday.

As the index has turned right at the target zone and also that the price pattern has resulted in the formation of a bearish "key reversal day" pattern, there is a case for the much anticipated corrective phase. The first target for the Nifty is at 3350-3360.

A close below 3340 would result in a much deeper correction. We are looking for a deeper correction extending up to 3150-3200.

The view of a corrective phase would remain valid as long as the index rules below 3556. A close above 3560 would imply that the fall on Friday was a minor blip and not the start of a major correction.

Comments

With the earnings season getting underway, there could be a higher degree of volatility in the market. Software heavyweight Infosys is scheduled to come out with its quarterly earnings announcement this week. This could have a major influence on the near-term price movement of the stock as well as the index as a whole.

Sensex (11589)

The index moved in line with expectations. A positive trend prevailed and the Sensex moved to the target zone at 11500-11700.

The failure to hold above this target zone along with the formation of a "bearish engulfing" pattern in the Japanese Candlestick chart indicates that the Sensex could get into at least a short-term correction. The immediate support is at 11350-11380.

A close below 11350 would indicate that the Sensex is headed towards 10150-10200.

Though we favour a drop to 10150-10200 as the preferred view, it is better to wait for confirmation.

Investors may look for opportunities to reduce exposures. Fresh buying may be considered at lower levels, as the long-term trend is positive.

The index is likely to resume the upward trend on the completion of the corrective phase.

CNX IT (4347)

The index ruled firm and also moved past the target zone at 4470-4500 that was mentioned last week. The sharp reversal on Friday has imparted short-term bearish trend. A drop to 4200-4220 appears likely.

A close below 4340 would confirm the short-term bearish view, while a close above 4460 would reinstate bullishness.

(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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