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B. Krishnakumar

NIFTY (1491.2)

Preferred view: The trading activity continued to be listless during the past week. The index was confined to a narrow trading zone and the institutional investors and FIIs were conspicuous by their absence. A "contracting triangle" pattern appears to be taking shape on the daily price chart of the Nifty.

A violent move in the direction of the breakout may be expected once the price breaks out of the triangle pattern. A drop below 1470 would impart bearishness; a move past 1570 will have positive implications. The earlier view, of a drop to the recent low of 1292, is still valid.

Considering that the medium-term trend is still bearish, the index would resume the downtrend even if it breaks above the positive trigger price of 1570. A break past this level would lead to a test of the 1625-1630 range. The downtrend is likely to resume after the completion of the move at 1625-1630. Only a close above the 1700 would warrant a re-look at the bearish outlook.

Comment: The lack of any trigger appears to be the key factor inhibiting the flow of funds into the market. The recent trend of a sideways price action may be the order of the day until significant triggers come to the fore to influence price movement in a particular direction.

The progress of the monsoon, earnings growth reported for the quarter ended June 2004 and the Budget proposals could be key triggers influencing market movement. Going by the chart patterns, the short-term outlook for both the Indian rupee and the stock markets appears weak.

Alternative view: The view expressed in earlier weeks remains unchanged. A move above 1750 would have positive implications. It would indicate that the market has formed an intermediate bottom at 1292. However, only the momentum and nature of the upmove would determine whether the low at 1292 represents completion of the earlier downward phase.

SENSEX (4770)

Preferred view: The Sensex continues to be in a congestion phase. This is reflected by the narrow 167-point range, within which the Sensex fluctuated during the week. A similar trend was evident in other key global markets and quite a few commodities as well. While the drop to the recent low of 4228 is the preferred view, the near-term trend hinges on the direction of the breakout from the ongoing sideways price action.

A decline below 4650 would be an early indicator of the onset of the bearish trend. On the other hand, a move past 5000 could impart short-term buoyancy pushing the Sensex up to the 5180-5200 band. The recent price patterns do not throw up significant clue about the short-term trend.

Alternative view: While the index is expected to test the 4228 level, a move past 5500 would be an early sign of the reversal of the downtrend. As mentioned in earlier weeks, the expected weakness will not, however, negate the long-term positive outlook for the market.

S&P CNX 500 (1236.4)

Preferred view: The movement in this index was not different from the other benchmark indices. A bout of alternating up-and-down close witnessed last week is a sign of uncertainty. Over the recent weeks, the range of movement has narrowed progressively. This is a classic precursor of an impending violent move. As observed in earlier weeks, the index appears to be headed towards sub-1087 level. At the moment, only a move past 1400 would blunt the weak outlook for the index.

CNX IT (2028.3)

Preferred view: Though the index, too, was confined to a narrow range, it managed to record a weekly gain of about 20 points while other indices recorded a net weekly decline. The short-term trend depends on the price movement in the next few days. A move past 2070 would have positive implications while a drop below 1952 would impart weakness.

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