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B. Krishnakumar

SENSEX (3921.2)

Preferred view: As anticipated in earlier weeks, the index managed to comfortably move past the previous resistance level of 3760. The Sensex appears to be on its way towards the immediate target zone of 4050-4100 that was mentioned a few weeks ago. However, the recent price patterns indicate waning upside momentum that is reflected in the form of a negative divergence between the indicators and the actual index movement. A sideways or downward correction may be round the corner.

Comments: A break below the upward sloping trend line (present value 3848) would be an early indicator of the onset of the technical correction. On the downside, the earlier resistance level of 3760 would act as a key support level. The ability of the index to hold above this level would be critical in determining the overall strength of the bull market and the long-term outlook as well.

Alternate view: As mentioned a couple of weeks ago, the close above 3750 has resulted in the resumption of the upward trend. While there is a possibility of a move to the 4050-4100 level, the view of a drop to the 2500-2600 range is still not completely ruled out. As observed in earlier weeks, the possibility of a drop to this range would be completely negated only if the index closes above the 4900 mark.

NIFTY (1247.7)

Preferred view: Similar to the Sensex, the movement in the Nifty too was in line with earlier expectations. As anticipated, the move past 1180 imparted positive trend and the index has managed to motor above the target zone of 1200-1210. However, the upward momentum behind the recent rally appears to be losing steam. While a move towards the 1300-1320 range appears likely, a drop below 1210 would impart short-term downward correction that can push the Nifty to the 1170-1180 range.

Comments: A series of negative divergence between the movement in the Nifty and its indicators (14-day RSI in particular) is a cause of worry. A negative divergence occurs when the index makes higher highs while the indicators such as RSI or MACD fails to make corresponding higher highs. This indicates that the index may be in the final leg of the present rally. An upward-sloping Wedge pattern appears to be taking shape in the Nifty price chart. This is a bearish pattern and a break below the lower boundary of this pattern could lead to a sharp downward spike. A decline below 1210 would be an early indicator of the onset of the downward correction.

S&P CNX 500 (1007.2)

Preferred View: The index managed to move to the earlier mentioned target zone of 975-1000. After touching a high of 1010, the index closed slightly lower at 1007 on Thursday. Though a move towards the 1040-1050 range appears likely, there appears to be limited upside potential for the index from current levels.

Comments: There has been a mixed trend in the mid-cap stocks. While the likes of Indian Rayon, Saw Pipes and Dabur managed to move up, quite a few stocks including Orchid Chemicals, Bata India and Cosmo Films have ruled relatively weak. Taking into account this divergent trend and the possibility of a sizeable downward correction, it would be safer to book profits in mid-cap stocks.

NASDAQ (1700.3)

Preferred view: After some downward correction in the recent weeks, the index has managed to stage a recovery in the past few days. The overall outlook for the index continues to remain bullish. The earlier view that the index is headed towards the 1875-1900 range continues to remain valid. Only a close below 1620 would blunt the positive outlook.

Comments: A move past 1790 would indicate the resumption of upward trend in the Nasdaq Composite Index. While the overall trend remains positive, a close below 1620 would warrant a re-assessment of the bullish outlook.

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