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B. Krishnakumar

Nifty (1786.9)

Preferred View: The index moved in line with expectations. A short-term rally materialised as anticipated last week. After a sharp slide on Monday, the Nifty ruled firm and touched a high of 1808.85 for the week. The trend, however, turned weak on Friday. The sharp fall on Friday lends uncertainty to the recovery process that was witnessed in the preceding three days.

The Nifty is likely to rule weak and a drop to the 1755-1760 range is not ruled out. A break below 1750 would impart further weakness. There are no signs of the completion of the downward cycle in the weekly charts. This tends to confirm the bearish outlook for the Nifty.

A weekly close above 1816 is required to impart positive trend. A move past 1830 would confirm that the trend has turned bullish. Till such time, the view of a drop to the 1735-1740 range would be valid. Holders of long positions either in the index or in index heavyweights may either tighten the stop-loss or take partial profits.

Comments: The market sentiment turned positive during the week on the back of a correction in the crude oil price. This imparted positive sentiment in major equity markets across the globe. The decision to leave the interest rate untouched by the Reserve Bank of India also imparted strength to equity markets.

Index heavyweights - Reliance Industries and ONGC reported their quarterly performance during the week. The stock market does not appear too enthused with the performance, if the price movement in the two stocks is any indication.

The Nifty is perched at a crucial level. A move past the immediate trigger level of 1808 would be an early indicator of market strength. A drop below 1770 would have bearish implications and could push the index down to the 1750 level. The movement in the next few days would have a major influence on the trend over the next few weeks.

Alternative view: A short-term weak trend is the preferred view. However, a move past 1808 would impart strength. This would also result in the breakout of a "bull flag pattern" that would have positive implications. The long-term outlook, however, remains bullish and the index is expected to resume the uptrend after completion of the expected short-term drop. This view would be negated if the Nifty drops below 1735.

Sensex (5672.27)

The movement in the index was in line with expectations. Similar to the Nifty, the trend in the Sensex, too, turned bullish after a drop on Monday. After an intra-day drop below the negative trigger level of 5570, the Sensex staged a strong recovery on Tuesday.

The near-term outlook for the index is bearish. A move below 5620 would be first sign of weakness and a close below 5550 would pave the way for a further slide to the 5400-5450 range. Only a move above 5730 would negate the bearish outlook and impart strength.

Comments: The frenzy for mid-cap stocks was manifest last week as well. While quite a few large cap stocks were confined to a narrow range, the mid-cap stocks continued to sizzle. The recent surge has pushed quite a few mid-cap stocks to an overbought region. A short-term correction, or at least a sideways consolidation, may be anticipated in the near term. Those holding profitable positions may look to take profits.

S&P CNX IT (2667.15)

The index ruled weak and also dropped to the target zone of 2550-2555 that was mentioned last week. After hitting a low of 2522, the index staged a sharp recovery on Tuesday. After a short-term drop, the index is likely to move towards the 2710-mark. A drop below 2610 would result in a drop to the 2550-2560 range.

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