The Hindu Business Line : Index Outlook

The market action was in line with expectations. The overall trend remained bearish and the index dropped tested the downside target cum support zone of 3340-3350 that was mentioned last week. After sliding to a low of 3290, the Nifty closed on a relatively better note at 3345 on Thursday. The price patterns indicate that the recent declining phase is not over as yet. The fall from the high of 3555.5 appears to be the first leg of a "zig-zag" pattern in Elliott Wave parlance. The immediate support is at 3240-3250. The Nifty is likely to test this support zone and could move into an upward corrective phase subsequently.

There is a case for a much deeper correction and the recent price action supports such a view. We continue to favour a drop to the support zone 3140-3160 as the preferred view. Considering that the volatility is bound to be high with the onset of the earnings season, it would be safer to reduce exposures in the derivatives market segment.

The only positive aspect at the moment is that the index is still holding the crucial upward sloping trend-line with a slope of about 8.7 points per day. This trend-line is drawn using the low of 2307.45 (October 28, 2005) and the next swing low at 2783.85 (January 18). This line has offered support on quite a couple of occasions in the recent past. A close below 3270 would result in the violation of this line and would confirm the view of a drop to 3140-3160.

Comment

The imposition of additional margins in the derivatives segment and FIIs turning net sellers affected the market sentiment during the week. The rising price of crude oil in the international market aggravated the situation. With the earnings season getting under way, signs of slowdown in the corporate earnings growth would impart further weakness.

Sensex (11237)

This index, too, moved in line with expectations. A bearish trend prevailed and the Sensex moved to the target zone at 11500-11700. The price action during the week has resulted in the formation of a "bearish engulfing" pattern in the weekly Japanese candlestick chart.

This is not a positive sign and the index appears on course to drop to the target zone at 10150-10200. As observed last week, 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 (4140)

This sector-specific index too ruled weak and dropped below the target zone of 4200-4220. The near-term outlook remains bearish and a drop to the immediate support zone at 4020-4050 appears likely. A close below 4000 would impart further weakness and the index could drop subsequently to 3710-3720. The immediate resistance is at 4200-4210. Stop-loss for short positions may be placed at 4210.

(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)

More Stories on : Technical Analysis | Technical Analysis

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page