Worst may be over for the markets

There’s a strong case for the Sensex to at least retest the recent swing high of 15580

Sensex (14042.32): The turn of events over the past few days was dramatic to say the least. A few top-rung investment banks went bust, global markets went into a tailspin and the price of gold registered the biggest single day gain — all these events occurred within a span of about four days. And the recovery over the last couple of trading sessions was equally dramatic.

The Sensex staged a whopping 1500-point recovery from the low of 12558 recorded on Thursday to close at 14042 on Friday. Technically, the index moved in line with expectations and the index tested the support zone of 12650-12800 mentioned last week. After an intra-day breach of the support zone, the index staged a sharp recovery on Thursday.

The question that every other person seeks an answer to is: “Are we out of the woods and is the worst over for the markets?” The answer to this question would be in the affirmative, at least from a short- to medium-term perspective. At the moment, the strategy for traders should be to look for buying opportunities on dips with an initial target of 15500-15800 range.

Using Allan Andrews Pitchfork tool, there is a possibility that the index could test the target zone of 16000. As long as the index holds above 12500, there is a strong case for the index to at least retest the recent swing high of 15580. Short-term resistance is at 14700-14750 and support at 12900-13100.

Nifty (4245.25): A bearish trend prevailed for the best part of the week and the index dropped to the support zone of 4050-4080 mentioned last week. The price action over the last couple of days is quite bullish and the index could retest the recent swing high of 4650.

The bullish view would be valid as long as the support zone at 3790-3800 is not violated. Technically, there are quite a few reasons to cheer. The occurrence of a potential “double bottom” pattern and the completion of a classic “hammer” candlestick pattern in the weekly time frame are major positive developments from a technical perspective. The emergence of positive divergence between the 14-day Relative Strength Indicator and the price action is another bullish feature.

The more interesting and crucial aspect is that the Allan Andrews Pitchfork tool has contained the action quite admirably. Based on this tool, there is a strong case for the index to move back to 4625-4650. Long positions may be considered on weakness with a stop loss at 3780 on daily closing basis.

CNX Bank Index (6312.05): The index is headed towards the 6350-6700 zone that has proved to be a stiff wall of resistance. Given the underlying strength in the overall market and the patterns displayed by the index, there is a possibility that the index could break past the resistance zone. And, if the breakout happens, the index could move towards the target zone of 7250-7300.

As observed last week, a close past 6700 would be a bullish sign and long positions may be considered subsequently. Long positions may also be considered on weakness with a stop loss at 5350 and initial target of 6100.

Key pivotals:
Axis Bank (Rs 709): The anticipated fall to Rs 630 materialised during the week. The short-term outlook is bullish and the stock could move to Rs 755-760. The bullish view would be in force as long as the stop loss at Rs 610 is not breached. Long positions may be considered on weakness with a stop at Rs 610 and target of Rs 755. A close below Rs 610 could push the stock down to Rs 545-550.

Infosys (Rs 1,624): The stock ruled weak and dropped to the support zone at Rs 1,450-1,500 mentioned last week. The bounce off this crucial support is a sign of strength and the stock could now move to Rs 1,725-1,750 in the short term. There is also a possibility of the upward move extending up to Rs 1,850-1,900. This is, however, contingent upon the stock negotiating its way past the initial resistance at Rs 1,750.

ONGC (Rs 1,072.1): The sharp recovery in this stock has played a key role in bolstering major indices over the past few days. This recovery has pushed the stock closer to its resistance zone at Rs 1,100-1,125. An inability to clear this resistance zone could result in a fall to Rs 995-1,000. On the other hand, a close past Rs 1,125 could push the stock to Rs 1,250-1,300. The trend would remain bullish till such time the stock trades above the stop loss level of Rs 900.
 
Stock of the week:
Educomp (Rs 3,628.1): The stock has been languishing in a trading range over recent weeks. The stock could drop to the lower boundary of this trading range at Rs 3,000-3,100. The immediate resistance is at the upper boundary of this trading range at Rs 3,950-4,000. Short positions may be considered at or beyond Rs 3,830, with a stop loss at Rs 4,010 and target of Rs 3,100.

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.