Sensex could head for 15500-15700

Sensex (14274.94): A series of positive developments imparted a sharp upward spike in key market indices last week. In the process, the crucial positive trigger level of 14650 was taken out.

This is a sign of strength and also confirms that a bottom of medium-term significance has been established at the low of 12514 reached on July 16.

The short-term trend has now turned bullish and the index could move to the 15500-15700 range. A rally to this target zone would continue after a brief downward corrective phase. The immediate support is at the 13600-13700 band. If the index has indeed established a low of some significance at 12514, there is a case for a bit of churning and prolonged range-bound action in the 13500-14500 range before the next leg of rally towards 15500-15700 gets underway.

On the other hand, a quick overhaul of 14840 would indicate the start of the next segment of the upward move and the index would then see a swift move on the upside. As long as 13100 is not breached, it would not be unreasonable to expect a rally to 15500-15700.

There is still a lot of scepticism about the nature and the extent of the recent pullback rally. At this moment, it would be premature to take a firm call on the long-term trend. The possibility of another leg of downward move, to sub-12500 level, is not ruled out.

Investors and short-term traders should, however, position themselves to capitalise on the short-term uptrend rather than worry about the long-term trend. It would be prudent to wait for clarity and let the market action provide a clue about the long-term trend. Appropriate action may be taken when such long-term clues are apparent.

Nifty (4311.85): A bullish trend prevailed and more importantly, the index moved past the bullish trigger level of 4350 during the week. The short-term outlook is bullish and a move to 4700-4750 appears likely. This would be the preferred view as long as the 4000 level is not breached.

The index is likely to test the immediate support zone at 4150-4175 and would resume the uptrend after the ongoing corrective phase is completed. Taking into account the momentum behind the rally witnessed and the ease with which resistance zones have been cleared, it appears that the upward momentum would continue for a while.

BSE Capital Goods Index (11738.27): After having taken a knock in recent months, stocks from the capital goods industry have displayed a strong recovery in the past week. The capital goods index has also outperformed the Sensex in the last couple of weeks.

The short-term outlook remains bullish and the index is likely to move to the target zone of 13500-14000. A move to this zone would begin after the completion of the ongoing corrective phase. A strong rebound from the support zone of 10500-10700 would confirm the bullish view and the index would comfortably sail to the target zone mentioned above.

Key pivotals
Larsen & Toubro (Rs 2,625.6): In line with expectations, the stock moved to the resistance zone at Rs 2,750-2,770 and the trend turned weak subsequently. After poking past this resistance zone, the stock swiftly reversed direction on Friday. The short-term outlook is bearish and the stock could drop to the Rs 2,500-2,525 zone shortly. Evidence of support in this zone may be used to take long positions with an appropriate stop loss as the stock could resume the uptrend after the ongoing corrective fall is over.

National Aluminium (Rs 442.3): After a sharp downward move, the recent price action suggests that the next segment of the upward move is underway.

A move to Rs 495-500 appears likely. From a medium-term perspective, there is a strong possibility of a move up to Rs 565-570. The bullish view would be invalidated on a drop below Rs 370. Long positions may be considered with a stop at Rs 370.

Reliance Industries (Rs 2,147.4): The sharp fall in this stock was instrumental in pulling down the key market indices on Friday. Though the short-term outlook is bearish, the stock could move to  Rs 2,450-2,500 once this ongoing weakness is over.

There is strong support at Rs 2,040-2,060 and resistance at Rs 2,230-2,250. Long positions may be considered on the evidence of support at Rs 2,040-2,060 with a stop loss at Rs 1,960.

Stock of the week
Dabur (Rs 92.1): The stock has been languishing in a broad trading range over the past few months. The price action in the past few days indicates that the stock could move to the immediate target zone of Rs 105-108.

As long as the stock holds above Rs 88, the trend would be bullish and a move to at least Rs 105-108 would be a distinct possibility.

Long positions may be considered with a stop loss at Rs 88.
Exposures may be enhanced on a move past Rs 94. A move past the resistance level of Rs 108 would push the stock to Rs 118-120.

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.