The Hindu Business Line : Correction likely in Nifty

Preferred view: The overall outlook for the index is bullish. A move to the previous pivot high of 3760 appears to be on the cards. The index is moving up steadily in a well-defined upward channel. A break below the lower boundary of this channel would be an early indicator of the onset of a short-term downward correction. The value of the lower boundary of this channel is currentl placed at 3450.

Comments: Except for drop on Tuesday, the index managed to rule firm in the remaining four trading days. As anticipated, the index managed to comfortably move past the target zone of 3400-3450, mentioned last week. The near-term outlook continues to remain positive. However, taking into account the momentum behind the rally, a short-term downward correction appears due.

Alternate view: The recent upward spiral in the Sensex has scotched the earlier bearish view. However, the possibility of a drop to the 2600-2700 range is still not ruled out. Only a break below the 200-day moving average (DMA), currently positioned at 3153, would be an indicator of the reversal in the current uptrend.

NIFTY (1100.25)

Preferred view: Though the overall outlook appears positive, a short-term correction could take shape shortly. The previous high of 1106 could be a key resistance point for the Nifty. A close above 1150 could push the index to the 1220-1250 range. On the downside, the support lies at the 1040-1050 range. A break below this range could have negative implications.

Comments: The movement in the index was in line with expectations. The Nifty managed to move past the target zone of 1070-1080 that was mentioned last week. A short-term downward correction appears most likely in the near term. Similar to Sensex, the Nifty too is moving up in an upward sloping parallel channel. A break below 1080, the lower boundary of the channel, could trigger the expected short-term correction.

Alternate View: The near-term positive view would remain valid as long as the index manages to rule above its 200 DMA, which is currently perched at 1014. As mentioned last week, there exists a possibility of the index moving toward the 1200-1250 range. This, however, is dependent on the strong move past the immediate resistance zone at 1110, followed by 1150.

S&P CNX 500 (872.8)

Preferred View: In line with expectations, the index ruled firm and moved closer to the earlier mentioned target zone of 890-900. However, the index appears to be losing momentum, which is reflected by the bearish divergence between the price movement and the associated indicators such as 14-day Relative Strength Indicator.

Bearish divergence is reflected by the fact that the value of index has been moving up and scaling higher peaks while a similar trend is not evident in the RSI. In the case of RSI, the recent high is lower than the earlier high, indicating the waning momentum behind the recent upmove.

NASDAQ (1644.72)

Preferred view: The movement in the index was in line with last week's expectations. The index failed to move past the resistance level of 1690. Some sort of a double-top pattern was completed on Thursday. The near-term outlook for the index continues to remain bearish. A drop to the 1450-1500 range appears likely. Only a close above 1690 would reinstate bullishness while a drop below 1610 would have major bearish implications for the index.

Comments: The decline from the high of 1686 on Thursday indicates that the downtrend would continue for a while. The Federal Reserve's FOMC meeting is scheduled this week wherein a decision on interest rate would be taken. This outcome of this meeting and the Chairman's economic observations would have a major influence on the market movement this week.

(Note: The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Analysis and price targets are based on the Elliott Wave Analysis. There is a risk of loss in trading)

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