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B. Krishnakumar

Nifty (1722.5)

Preferred View: The market movement was in line with expectations. The index moved up to touch the target zone of 1750-1770 and turned weak subsequently. The market action last week is a pointer to the W.D.Gann view that a change in trend is likely when price and time coincide.

The index hit the target zone during the time window projected earlier. Subsequently, it has registered a drop of about 33 points from the high of 1760 registered on Wednesday. Going by the recent price pattern, it appears that the index would continue to rule weak in the near term.

There are a few indicators suggesting that the weakness would persist. The formation of a bearish "evening star" pattern in the Japanese candlestick charts is a first bearish sign. As observed in earlier weeks, the 14-week Relative Strength Index is yet to break above the resistance level of 60. It turned weak after hitting this zone last week in yet another sign of imminent weakness.

It would, however, be premature to address the issue of how long the bearish trend would last and by how much the index will decline. The recent decline could either be the start of a fresh leg of bearish trend or just a correction to the sharp recovery seen over the past couple of weeks. The price in the forthcoming weeks would provide a pointer to the nature of the decline.

The pattern and the momentum behind the rally from the low of 1573.7 indicates that the recent decline could be just a correction. A move above the recent high of 1760.8 would be an indicator that the index is on its way towards higher levels of 1820-1830, followed by an eventual break above the historic high of 2014.6.On the other hand, if the index fails to move above 1760.8 and instead declines below 1660, it would indicate that the bearish phase could be protracted.

Sensex (5527.7)

Similar to the Nifty, the Sensex, too, ruled firm and also reversed direction during the week. After moving close to target zone of 5650-5700, the index turned weak on Thursday. The near-term trend appears bearish and the index could to the 5375-5400 range.

As in the case of the Nifty, a bearish "evening star" pattern is evident in the daily chart of the Sensex as well. This a textbook pattern in every respect. A close above 5639 - the high of this pattern - would negate the validity of the pattern.

Comment: After exhibiting strength on Tuesday and Wednesday, reports that the turnover tax and other tax proposals and profit taking would take effect from October 1, appears to have affected market sentiment. The index tanked by about 77 points on Thursday; the sentiment did not improve in Friday's trading, too. While the Sensex turned weak towards the close of the week, it did not have any impact on the sustained rally in mid-cap stocks.

Quite a few mid-cap stocks, especially the ones from the pharma sector, notched significant gains during the week. Top gainers include Glenmark Pharma, FDC, Ind-Swift Labs, Alembic and GMDC. After lying low for a while, the stocks from the optic-fibre cables industry attracted buying interest. Companies such as Birla Ericsson, Sterlite Optical and Vindhya Telelinks were major gainers.

S&P CNX IT (2429.1)

The pattern in this index was not too different from that of the Sensex or the Nifty. Except for strength on Tuesday, the index ruled weak. The movement was in line with last week's expectations. As anticipated, a bearish trend prevailed and the index appears headed towards the support level of 2380-2400 range that was mentioned last week..

(The analysis and opinion expressed in these columns are based on the technical analysis of the past price behaviour. Opinion and price targets are based on the Elliott Wave Analysis. The stop-loss level provided with the recommendation is important. The original view would stand negated if the stop loss level is breached. There is a risk of loss in trading)

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