Ranged action may have downward bias

Sugar, mid-cap technology and commodity stocks could see trading interest

Sensex (14724.18): The market action last week was bearish. Though the recent downward move has raised concerns about the nature and sustainability of the medium-term uptrend, there is nothing to suggest that the uptrend is complete.

The possibility of a rally to 15500-15700 is still intact and remains the favoured view. The rally to this target zone may get protracted owing to the extension of the corrective process.

The disconcerting factor for the bulls is the inability of the index to move past the 61.8% projection of the earlier rally from 12514 to 15130. It is imperative for the index to hold above the recent swing low of 13727 to maintain the sequence of higher highs and higher lows.

Going by the recent price action, the index is likely to find support at 14150-14400 and resume the uptrend subsequently. Considering that both gold and crude oil have come off sharply in recent weeks, there is a case for short-term strength in these commodities. This could halt the progress of the recent recovery process in equity markets.

On balance, equity markets could see a ranging price action with a moderate downward bias for a while. Market action would turn stock and sector specific and investors need to adopt a short-term trading approach and need to take profits at regular intervals.
Companies in the sugar, mid-cap technology and commodities sector could see market interest.

Nifty (4430.7): Though a bearish trend prevailed during the week, it has not negated the medium-term bullish view or the prospects of a rally to 4700-4750. Considering there is a lot of trader interest in the Nifty, it is not surprising to notice that the retracement and projection levels work like a charm in this index.

The tendency of the index to reverse off the 50% level was highlighted last week. This week, it is interesting to note that the index has reversed direction right at the 61.8% projection of the rally from 3790 to 4539, scaled up from the swing low of 4159.

From a medium-term perspective, the index is on course to move to the 50% retracement target of 5070. The short-term support is at 4350-4375. A drop below 4342 could push the index to 4150-4200. Though the recent price action suggests a delay in progress towards the target zone, it has not negated the bullish view. Investors may use price weakness to buy fundamentally sound stocks.

CNX Bank Index (6030.05): The stocks from the banking sector had borne the brunt of the selling pressure during the week. Considering the sharp recovery off the lows, it is not surprising to notice the sell-off. As observed last week, banking sector stocks act as a leading indicator and the weakness acted as a forewarning of the impending short-term downward correction.

The outlook for the index remains bullish and a move to 7850-8000 remains the preferred view. A close below 5394 is required to question this bullish view. As mentioned in earlier weeks, investors should capitalise on this volatility by adopting a short-term trading approach with respect to a portion of their holdings. This would reduce the overall cost of the core portfolio holding.

Key pivotals:
State Bank
of India (Rs 1,458.2): The stock ruled weak and appears on track to test the support zone of Rs 1,340-1,400 mentioned last week. The medium-term outlook remains bullish and a move to Rs 1,750-1,800 remains the favoured view. Investors may buy the stock on the evidence of support at Rs 1,340-1,375 zone with a stop loss at Rs 1,290. A trailing stop loss may be used in the event of a move past the target zone.

Cairn India (Rs 245.3): The short-term outlook is bullish and a move to Rs 265-270 appears likely. The stock has strong support at Rs 230-235. Long positions may be considered on weakness with a stop loss at Rs 222. Take partial profits at the target zone of Rs 265-270. A trailing stop loss may be used in the event of a move past the target zone.

Sterlite Inds (Rs 621): After a sharp sell-off, the stock appears to be  bottoming out. Short-term outlook is bullish and a move to Rs 655-660 appears likely. Investors may use price weakness to build exposures at or close to the support zone of Rs 600-605, with a stop loss at Rs 574. At least partial profits may be taken once the stock reached the resistance zone of Rs 655-660.

Stock of the week:
Aptech (Rs 235): The recent price patterns suggest that the stock is in a short-term uptrend. A move to Rs 265-270 appears likely from a short-term perspective. There would be opportunities to exit at Rs 310-315 for those willing to hold for a longer timeframe. The bullish view would be negated on a close below Rs 210.

Long positions may be considered at current levels and on weakness with a stop loss at Rs 210. Partial profits may be taken at the first target zone and a trailing stop loss may be used in the event of a move past this target zone.

Note: The analysis and views expressed in this column are based on the technical analysis of historical share price action. There is a risk of loss in trading. Views and targets are arrived at by using the Elliott Wave Theory and Point & Figure technique. The author does not have  investment exposure in the stocks  discussed above. Comments and  feedback may be sent to bkrish16@gmail.com.