Trend’s southward in the near term

A minor relief rally may be expected if the index holds above 13500-13650

Sensex (14001): The trend remained bearish as anticipated last week. The index once again edged past the trigger level of 15106 and failed to sustain above it. After hitting a high of 15107, the index closed way off its high on Monday and the trend remained bearish for the rest of the week as well.

The short-term trend would be bearish as long as the index trades below the resistance level of 14600. The immediate support is at the 13500-13650 zone. A minor relief rally may be expected if the index holds at this support zone. A close below 13500 could push the index to 12650-12800.

From a trading perspective, the overall context beckons initiation of short positions at resistance levels with an initial target of 13500. Short positions may be considered on evidence of weakness around the resistance zone at 14650-14800. A quick move past 14800 and a decisive close past the swing high of 15108 are required to question the scope for further weakness.

As the trend in Reliance Industries, ONGC, ICICI Bank and Infosys appears bearish, it would be a tough task for the index to stage a sustained recovery in the near term. Long-term investors may step aside or may buy in a staggered fashion on every 5-8% fall. Short-term traders may wait for a pullback rally to go short with an appropriate stop loss.

Nifty (4228.45): The index trend ruled weak and as observed in the earlier weeks, the index is on course to test the earlier swing low of 4159. The typical “wash and rinse” price action witnessed and discussed over the past two weeks was in action last week as well. The index edged past the earlier swing high of 4522 on Monday and reversed direction immediately and a sustained bearish trend prevailed in the subsequent days.

The short-term outlook remains bearish and a test of 4159 remains the favoured view. A close below 4159 could push the index to the next target zone of 4050-4080. Unless the index trades above 4300, the underlying trend would be bearish and traders should be looking for shorting opportunities. Stop loss for short positions may be placed at 4335.

CNX Bank Index (6194.15): The humungous resistance zone at 6350-6700 stalled the upward move last Monday. As observed last week, 6350-6700 is proving to be a strong resistance zone and the index has to clear 6700 to indicate that the worst is over for the sector.

The positive feature from a broad trading perspective is that the index is tracing out a series of higher lows after hitting this resistance zone. This suggests that the selling force at the resistance zone is losing momentum. As a corollary, it can be stated that this resistance zone is likely to give way and an upside breakout may happen soon as the sellers at the resistance zone are not powerful enough to push the index to lower lows.

As always, it would be prudent to be guided by price action rather than taking action based on expectations. A close past 6700 would be a bullish sign and long positions may be considered subsequently. On the contrary, a close below 5600 would disrupt the sequence of higher lows and would have bearish consequences. Initiating short positions at or beyond 6350 with a stop at 6710 would be a high-odds trade in the overall bearish market.

Key pivotals:
Axis Bank (Rs 693): Even amidst the overall bearish trend, this stock was confined to a narrow trading zone during the week. The short-term trend remains bearish and the stock has to clear Rs 775 to reinstate bullishness. Till such time this level is overhauled, it would be advisable to consider short positions on rally, with a stop at Rs 775 and target of Rs 630.

Infosys (Rs 1,644): The price action during the week has cast a shadow over the bullish view expressed in earlier weeks. The sharp sell-off on Friday is a cause for concern and there is a risk of the stock sliding to Rs 1,450-1,500 in the short-term. The stock has to close above Rs 1,775 to reinforce bullishness. Short-term traders may look to initiate short positions on the evidence of weakness at or beyond Rs 1,730, with a stop loss at Rs 1,775 and target of Rs 1,500.

Tata Power (Rs 1,003): This stock, too, failed to live up to the promise it displayed the week before. The price action this week has almost negated the bullish view as well as the long-term recovery process. Investors may avoid long positions for now. The near-term trend is down and it would be appropriate to look for the right levels to go short. Stop loss for long positions may be placed at Rs 1,175 and the immediate support is at Rs 895-900.

Stock of the week:
IVRCL Infra (Rs 277): The short-term outlook appears bearish and a drop to Rs 245-250 appears likely. The immediate resistance is at the Rs 300-305 zone. Short positions may be considered at or beyond Rs 300, with a stop loss at Rs 325 and target of Rs 245. A close below Rs 245 could have further bearish implications. The bearish view would be negated on a close above Rs 330.

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.