The Hindu Business Line : Short-term correction likely in Nifty

Preferred view: The market sentiment remained bullish during the week while the trading volumes took a knock owing to torrential rain that lashed Mumbai. The Nifty ruled firm and moved to the target zone of the 2320-2330 range.

The Nifty is likely to seek higher levels after a brief correction in the near term. A test of the immediate support level at the 2250-2260 range appears likely.

A close below this level would warrant dilution of long positions and a drop below 2220 would impart a bearish trend.

The occurrence of the negative divergence has been highlighted on earlier occasions. There was another such instance last week. While the Nifty touched a new peak, the indicators such as the 14-day RSI failed to do so; they have recorded a relatively lower peak instead. This is a sign of waning momentum and a forewarning to a corrective phase.

This does not, however, imply that investors have to exit in a hurry. It would be advisable to adopt a cautious approach.

Partial profit booking at every rally would be a safe course of action. Fresh exposures may always be considered when fresh "buy" signals are triggered.

Comment: The trading during the week was curtailed to four days owing to heavy rain in Mumbai. The market action turned volatile on Friday, which was the day of expiry of futures and options contracts for the month of July. Investors need to view every new high in the indices as an opportunity to cut exposures in index stocks.

Long-term view: The long-term view featured in the earlier weeks is unchanged. The price action during the week has not negated the view of a rally to the 2550-2600 range. The long-term positive outlook would be under threat if the index closes below the 2160-mark.

SENSEX (7635.4)

Preferred view: The index moved in line with expectations. The Sensex moved closer to the target zone of 7750-7800 mentioned last week. It touched a high of 7708 on Friday before closing at a relatively lower level of 7635.

The index could get into a corrective phase that might last for a short period. A drop to the 7400-7450 range appears likely and the index could resume the uptrend towards the 7750-7800 range subsequently.

CNX IT (2985.9)

The index was confined to a narrow trading range during the week. This has not altered the earlier view of a move to the 3040-3060 range. The index enjoys support at the 2900-2920 range. The positive outlook would be in force as long as the index holds above 2830.

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