B. Krishnakumar

NIFTY (1872.95)

Preferred view: As anticipated, the market sentiment remained bullish last week.

Except for a weak trend on Tuesday, the index closed on a positive note on the remaining four days of the week. There is a possibility of a short-term correction materialising this week. A drop to 1830-1835 range appears likely. This view would be validated if the index drops below 1854.

The short-term bearish view would be in force as long as the index trades below the positive trigger level of 1890. A move past 1890 would impart strength and would push the index to the target zone of 1920-1930. Those holding long positions may have a stop loss at 1854.

The series of "bearish divergence" in the daily chart of the Nifty and its 14-day Relative Strength Index (RSI) is also a cause of concern. The index has moved to higher highs progressively over the past few months. In the 14-day RSI, a series of relatively lower highs is evident.

Typically, the bearish divergence is a forewarning to an impending correction. Aggressive traders willing to take risk may take short positions in the Nifty, with a spot-market-stop loss at 1890.

Comments: Though the index managed to record a weekly gain of about 20 points, the upward move last week was not too convincing. The rally last week appeared to lack bullish momentum, which is not a positive sign.

The Nifty is moving within the confines of a well defined upward sloping channel. The possibility of the index testing the lower boundary of this channel at the 1813-level is not ruled out.

The price pattern in quite a few index stocks also indicates the absence of bullish momentum. Given this backdrop, the index is also likely to either remain range-bound or drop to lower levels.

Alternate view: Though a correction or at least a consolidation in the form of a sideways price action is the preferred view, a move past 1890 would impart bullish momentum.

Those holding long positions may either tighten the stop loss or may book partial profits by liquidating a portion of their holding.

SENSEX (5964.01)

The movement in the index was in line with expectations. A positive trend prevailed as anticipated last week. The Sensex managed to move past the psychological 6000-point mark during the curtailed trading on Friday. The index could not however hold above this level and closed slightly lower at 5964.

The recent price pattern indicates that the index could get into a corrective phase in the near term. A drop to 5750-5800 range appears likely. This view would be confirmed if the Sensex declines below 5910. The short-term bearish view would be invalidated if the index moves past 6010.

Comments: While the frontline stocks did not display distinct bullishness during the week, the mid-cap stocks continued to attract sustained buying interest. Stocks such as South East Asia Marine, Eastern Silk, Gujarat Alkalies, Gujarat Mineral Development and Andhra Sugar were prominent gainers of the week.

Out of the universe of mid-cap stocks, Eastern Silk and Andhra Sugar appear to have upside potential from prevailing levels. Long positions may be considered with a close stop loss in place.

S&P CNX IT (2792.55)

The index was stuck to a narrow trading range last week. This however has not negated the earlier view of a rally to 2950-2960 zone. The index is expected to move towards this zone on the completion of the ongoing sideways pattern. The bullish view would be in force as long as the index holds above 2730. A drop below 2730 would negate the positive outlook and would also push the index to 2675-2680 range.

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