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B. Krishnakumar

NIFTY (1925.3)

Preferred view: The market sentiment was distinctly lacklustre during the past week.

The Nifty was stuck in a narrow trading zone. A move above 1967 would be a short-term positive trigger, which would help the index move to the crucial resistance level of the 2000-level on the daily price charts.

We remain bearish on the medium-term outlook. A close above 2000 would warrant a revision of the bearish view. On the downside, the immediate support is placed at the Fibonacci confluence level of 1840-1850.

Long-term view: The recent patterns indicate that the Nifty may witness a prolonged corrective phase. The emergence of a bearish divergence in the weekly chart is a cause of concern. This pattern occurs when the price moves to a new high while the technical indicators fail to do so. This is a classic sign of a "topping" pattern. Such a pattern is now visible on the daily as well as the weekly charts of the Nifty. Though the index moved past the earlier high of 2014.65 and went on to scale a new peak of 2120 a couple of weeks ago, the key indicators have failed to do so.

There are two possibilities based on pattern traced out by the Nifty. The index may move on to a new historic high of about 2250-2300. This would mark the completion of a major move that started in 2001. The index would then retrace the entire length of the latest upward move that commenced in May 2004 at 1292.2. After hitting a low of about the 1300-1350 range, the index is likely to resume a sharp upward move.

Under the second alternative, the view is that the index may have completed the upward move at the latest high at 2120. This would mean that the index would drop to the target zone of 1350-1400. The long-term upward trend would reassert itself subsequently.

In both cases, the index is likely to drop to 1300-1400 range. The aspect that needs confirmation is whether the index would move to a new high before the slide or would it drop to lower levels without any upside. The market action in the next few weeks would provide clues regarding the likely trend.

A move past the 2000-level would lend strength to the index and might give credence to the first alternative where the Nifty is expected to move to a new high.

On the contrary, a drop below 1730-1740 range would confirm the second alternative and it would mean that the Nifty has already commenced its journey towards the 1350-1400 range.

In both cases, our long-term bullish view remains unchanged. After the expected drop to 1300-1400 range, a powerful upward trend would take the index to record highs.

SENSEX (6183.2)

The movement in the index last week was devoid of any trend or momentum. The price action in the next few weeks would decide the medium-term trend for the Sensex. A move past 6480 would impart strength while a drop below 6050 would result in the continuation of the downward move. The immediate support level for the Sensex is placed at 5870-5880 range. A drop below this range would have bearish implications.

CNX IT Index (2702.4)

The index failed to move past either of the trigger levels mentioned last week. Though there was an intra-day breach of the positive trigger level of 2730, the index failed to close above it. A move past 2790 would impart strength while a drop below 2610 would have bearish implications.

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