Dissector: Structural uptrend in CNX IT futures: Business Line

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CNX IT Futures (7153.3) is based on the underlying index CNX IT index that comprises 20 stocks from the technology sector. Market lot for this contract is 50.

Long-term

Finding support at its longer-term support band between Rs 1,950 and Rs 2,000 (2004 trough), the CNX IT futures bottomed out in March 2009. It has recorded a remarkable recovery since then. However, the futures encountered resistance at 6,175 level in January 2010 and consolidated sideways in the range between 5,445 and 6,175, before it emphatically broke out upwards in September 2010.

In the long-term, CNX IT futures can trend higher and encounter resistance in the range between 7,500 and 7,600. Emphatic break through of this range can take the futures higher to 8,000 and then to 8,250. On the other hand, strong fall below 6,500 levels can pull the contract lower to 5,850 and then to 5,450.

Medium-term

Medium-term trend was down for CNX IT futures from its all-time high of 7,630 marked in January 2011 until it found support at 6,500 in late March. However, the futures changed direction thereafter, triggered by positive divergence displayed in the daily moving average convergence divergence and the presence of significant intermediate-term support.

Last week, the contract breached its immediate key resistance and 50-day moving average in the band 6,900 and 7,000. Nevertheless, the index futures has retraced 61.8 per cent fibonacci retracement level of its prior downtrend and it is hovering around 7,200 levels, which is a crucial trend deciding level.

Decisive rally in the upcoming week can lift the CNX IT futures higher to 7,355 and then to 7,600 in the medium-term. Inability to breach 7,200 levels will drag the index futures lower to 6,900, 6,675 and then to 6,500 levels.

Bank Nifty Futures

Bank Nifty Futures (11,677.1) is based on the CNX Bank index. This index comprises of 12 stocks from the banking sector. Market lot is 25 for this contract.

The Bank Nifty Futures peaked out in January 2008 at 10,806 due to global recession and started trending down. It completely retraced its prior up-move formed between mid 2006 and early 2008 and found support in the range of 3,300 and 3,400 in March 2009.

The future however, reversed direction and has been on a longer-term up trend since then. After testing significant long-term support around 10,500 (January 2008 peak) for more than two month, the future resumed its up trend in early March 2011. If the current up move sustains, the futures has the potential to rally higher to 12,500 and then to 13,300-13,500 range in the long-term.

On the downside, conclusive penetration of its immediate significant support at 10,500 can pull the future lower to 9,500. Damage of this support can drag the futures down to 8,000 and 8,250 support zone. However, a fall below this zone will be a threat for the long-term uptrend.

Medium-term

Bank Nifty futures continue to be in a medium-term downtrend that commenced at the November 2010 peak of 13,320. It is currently pausing just below the medium-term trend deciding zone of 11,900 and 12,100. Strong surge above this zone can take the futures higher to 12,500. Subsequently it can rally to its long-term target in the 13,300-13,500 range.

Conversely, reversal from this trend deciding zone will signal resumption of the medium-term downtrend that can pull the future down to 11,000 and to its next key support level of 10,000 over the same time frame