The Hindu Business Line : Nifty: Outlook remains bullish

Preferred view: The overall outlook for the Nifty continues to remain bullish and there is no evidence to indicate the onset of a short-term reversal. Ideally, the index is expected to move to the 1450-1500 range. However, it is approaching a crucial resistance zone of 1340-1350. A short-term correction could set in if the Nifty fails to break above this zone.

As the overall trend is bullish, price dips ought to be viewed as an opportunity to take long positions. Investors, who are "in the money", could employ a trailing stop loss to not only capitalise on the anticipated uptrend but also to protect unrealised gains in the event of a short-term downward correction.

Comments: The recent uptrend has been quite unique in terms of the strong momentum and the absence of any significant correction. In this kind of a scenario, there is always a possibility that the investors, who have been waiting for a correction to enter the market, may not have found an opportunity to do so. Any hint of a correction could trigger fresh inflow of funds from such investors.

In this kind of a market, the use of conventional indicators would also be rendered meaningless. While the conventional indicators suggest that the Nifty is in an overbought region, not much significance need to be attached to these indicators as they are invariably stuck in the overbought region during a strong bullish phase. For now, a drop below 1300 would be an early evidence of the onset of a correction. And, it is always better to take profits at regular intervals and probably contemplate re-entry at a later date in this kind of a market.

Alternate view: While the market has been in a sharp bull run for about three months now, the entire rally could still be viewed as a technical correction to the bear market that pulled down the index from about 1818 to 849. The price movement in this quarter would be critical in determining the overall long-term outlook for the market.

SENSEX (4125.1)

Preferred view: The index moved in line with expectations. The Sensex managed to move to the target zone of 4050-4100. The overall outlook for the index remains positive with a move towards 4350-4400 being the preferred view.

However, the occurrence of a "Hanging Man" pattern in the candlestick charts on Friday is a cause of concern. This is a bearish pattern and could be construed as a forewarning of an impending correction. A close above 4160 within the next couple of days would render the pattern meaningless.

Comments: A break below the upward sloping trend line (present value 3940) would be an early indicator of the onset of the technical correction. On the downside, the 3850-3870 could act as a key support level.

S&P CNX 500 (1053.4)

Preferred View: As anticipated last week, the index managed to move to the earlier mentioned target zone of 1040-1050. After touching a high of 1059, the index closed at 1053 on Friday. The index appears to have the potential to seek the 1100-1120 range.

Comments: However, the weakness in a host of mid-cap stocks is a cause of concern. The share price of companies such as Indian Rayon, Saw Pipes, Orchid Chemicals, Bata India, Aban Lloyd and VSNL ruled relatively weak. It would be safer to take profits on uptrend.

NASDAQ (1765.3)

Preferred view: As expected, the index ruled firm and managed to move closer to the earlier mentioned target zone of 1875-1900. Though there is a possibility of a short-term drop to the 1640-1650 range, the overall outlook remains bullish. Only a close below 1590 would negate the positive outlook.

Comments: While index managed to move past the bullish trigger level of 1790, it failed to hold above this level. The price movement in the next few weeks would provide further clue about the future outlook for the index.

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