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B. Krishnakumar

NIFTY (1775.2)

Preferred view: After weakness in the first two trading days, the index staged a sharp recovery.

In the process, the Nifty moved past the positive trigger level of 1760.8. As observed last week, the break above this level has now confirmed that the index is headed towards higher levels.

The immediate target for the index is 1830-1840 range, followed by the eventual break past the historic high of 2014.65.

The index resumed the uptrend after a brief reversal during the turn dates identified using W.D. Gann methodology.

This indicates that the underlying momentum is quite strong and the index could have completed the correction at the low recorded at 1292.2 on May 17.

The movement in the relative strength index (RSI) also supports the positive outlook. The 14-day RSI found support at the 56-point market and rebounded subsequently.

Typically, the RSI tends to drops below 40 in a bearish market. The ability of the index to hold above the 40-level is a positive indication.

Similarly, in the weekly charts, the RSI is holding firm and is headed up. A break above the 70-level would confirm the positive outlook.

The recent price patterns and the bullish momentum indicate that the index would move past this level comfortably.

Comment: Despite the spurt in the price of crude and the implementation of the turnover tax for securities transaction, market sentiment remained buoyant. Along with Reliance and ONGC, the technology sector stocks, too, ruled firm and were instrumental in propping up the index.

With the earnings season round the corner, the growth rates achieved and the earnings guidance given by technology sector stocks would be the key sentiment drivers.

Alternate view: Though the recent momentum indicates that the index would re-test the earlier high at 2014.65, a drop below 1660 would be a cause of concern. This will not only blunt the positive outlook, but would also result in the onset of a bearish phase.

SENSEX (5675.5)

Similar to the Nifty, the Sensex, too, ruled weak initially and rebounded sharply as the week progressed. After moving close to target zone of 5,375-5,400, the trend turned positive on Wednesday. The near-term trend appears positive and the index could move to 5,850-5,900 range.

As observed last week, a close above the 5,639-level has negated the validity of the "evening star" pattern that was mentioned last week. The positive outlook for quite a few index heavyweights confirms the bullish outlook for the index.

Comments: While the Sensex turned bullish since Wednesday, the frenzy in mid-cap stocks heightened last week, especially in the pharma sector.

Led by Glenmark Pharmaceuticals, quite a few stocks including Alembic, Unichem, Ind Swift and Suven Life Science logged handsome gains during the week. The outlook for these stocks remains positive and there is scope for appreciation from present levels.

Of the lot, Glenmark Pharmaceuticals saw a flare up in price last week. It logged gains in excess of 50 per cent in six trading sessions. The stock, however, turned weak on Friday. We have covered this stock on numerous occasions in the recent past. The latest buy recommendation was featured in the edition dated August 8, 2004. Those holding the stock may take partial profits and re-enter at lower levels. After a short-term correction, the stock is likely to stage the next leg of upward move.

S&P CNX IT (2527.8)

The movement in the index was in line with last week's expectations. As observed last week, the index dropped to the target zone of 2,380-2,400 range and turned bullish thereafter.

The near-term trend has turned positive and a move to 2,580-2,600 appears likely.

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