Ready the shorts as Sensex rides down

A breach of the recent high can take index to 16000

Sensex (14483.83): The price action was in line with expectations and the uptrend reversed direction just above the 14750-14850 mentioned last week.

After peaking above the bullish trigger-level of 15000, the index could not sustain and reversed direction on Thursday. The recent price pattern confirms the view expressed last week.

As long as the recent swing high of 15106 is not breached, the index is likely to drift lower and could drop to 13800-13900. A drop below 14270 would be an early sign that the index is headed towards this downside target zone. On the other hand, a move past the swing high of 15106 would indicate the start of upward move towards 15850-16000.

As observed in earlier weeks, the medium-term outlook remains bullish and a move to at least 15500 would be the favoured view. The only area of uncertainty is whether the index would move to this target straightaway or after another segment of decline. 

The market is shaping up for a nice tradable move and investors should be alert to capitalise on this opportunity. Short positions may be considered on rally with a stop loss at 15110 and target of 13800. A stop-and-reverse strategy may be adopted in the event of a move past 15110.

Nifty (4352.3): After a strong start to the week, the sentiment turned bearish on Thursday and the index closed on a distinctly weak note on Friday. The price movement during the week was in sync with expectations. 

The typical “wash and rinse” price action that was highlighted last week was in action this week as well, the only difference being that the pattern occurred on the downside. This pattern occurs at crucial retracement level and the price action around the retracement level induces a lot of traders to get in to trade in a particular direction.

The trend reverses immediately and catches most of these traders on the wrong foot, leading to a massive covering of earlier position. The weak trend that persisted on Thursday would have forced a lot of these traders to cover up their longs, and the sharp sell-off in the US markets on Thursday did not help the cause either. This probably explains the sell-off on Friday even amid the cooling off in oil price and benign inflation number.

The bottomline is that investors must be conscious of this “wash and rinse” price action that could catch people unaware. A safe strategy would be to wait for a confirmation and follow-up price action before committing funds.

CNX Bank Index (6288.6): The index is facing stiff resistance at 6350-6700. It is pertinent to notice that there was a swing low established at this zone at 6335, in March 2008. This resistance zone has stalled attempts to make headway on four occasions.

The index has to overall touch 6700 to trigger a meaningful rally in the banking sector stocks. Else, there is a possibility of a drop to 3750-4000 range. A close below 5600 would be an early indicator that the banking index is on a major downward move.

It is imperative that the index clears the hurdle and overhauls 6750 as early as possible to reinstate bullishness. Until 6750 is taken out, investors may adopt a cautious approach towards the sector.

Key pivotals:
Axis Bank (Rs 686.6): The stock is in a short-term downtrend and could drop to Rs 625-630 levels. Short positions may be considered on rally with a stop loss at Rs 775 and target of Rs 630. In the event of a swift slide, long positions may be considered on the evidence of support in the Rs 625-630 zone with a stop loss at Rs 605 and a target of Rs 710.

Infosys (Rs 1,713): As observed last week, the short-term outlook is bullish and the stock could move to the immediate resistance zone at Rs 1,875-1,900. Long positions may be considered at or near the support zone at Rs 1,680-1,700, with a stop loss at Rs 1,630 and a target of Rs 1,875. The trend would turn bearish on a close below Rs 1,630.

Tata Power (Rs 1,080): After a major corrective phase, there are signs that the stock is getting ready for the next move in the upward direction. The reversal right at the support zone at Rs 1,000-1,010 is a positive sign. And the subsequent price action lends credence to the view that the next upward move is underway. Long positions may be considered, especially by positional traders, with a stop loss at Rs 990 on daily closing basis and a target of Rs 1300-1350.

Stock of the week:
Glenmark Pharma (Rs 669.4): Anyone trying to internalise the “symmetrical triangle” pattern need not look beyond the daily price chart of this stock. The pattern in the chart is text-bookish and the stock is just preparing to break out of this pattern. A sharp upward move may be round the corner once the breakout occurs.

A close above Rs 700 would confirm the breakout and the stock could then move to Rs 785-800. Long positions may be considered at current levels with a stop loss at Rs 615. Exposures may be enhanced, with an appropriate stop loss, on a move past Rs 700.

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.