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Sensex will have to clear the resistance zone of 16900-17000 for uptrend

Sensex (16415.57): A bearish trend prevailed during May and the index registered a fall of 871 points for the month. On the positive side, the index is still holding comfortably above the 20-month moving average of 15791, which is also the middle line of the Bollinger Band. As long as this line is not breached in the monthly timeframe, the index would hold its head above water.

The index managed to stay afloat above the support zone of 16150-16250 mentioned last week. This is a sign of strength and the index could attempt a recovery process in the short term. Before the bulls begin to celebrate, it should be noted that there is humungous resistance zone at 16900-17000. The index has to clear this resistance zone for an uptrend of some consequence to take shape.

Considering that the index is still hovering above the bearish trigger level of 16200, the chances of a rally to 18150-18200 are still alive. The occurrence of bullish “Harami” candlestick pattern at the support zone is another positive sign from a short-term perspective.

As observed in earlier weeks, a look at the market movement indicates that the market has digested most of the negative news on the economic front. In absence of fresh triggers, the recent ranging price action is likely to persist. Though there could be a moderate upward bias, a runaway price rally appears unlikely unless the index clears the resistance level of 17500.

Nifty (4870.1): Though the index dropped below the bearish trigger level of 4910, the typical follow-up selling pressure was absent. The index has a strong support at 4750-4775 range and the chances of a grinding upward move would be valid if this support zone is not breached.

A close below 4750 and a subsequent breach of 4630 would confirm that the index is on its way towards the long-term support zone at 4250-4300 zone. Considering that the index is still in a narrow trading zone, there is bound to be a lot of whipsaws and it would be relatively difficult to get a fix on the next major direction move until such time the ranging price action is resolved. The index has to clear either 5170 or drop below 4630 for a clear cut trend to emerge.

CNX IT Index (4688.35): As observed last week, the index is set to continue its recent outperformance for a while. The anticipated short-term correction did not materialise and the subsequent bullishness indicates that the index is on course to hit the target zone of 4850-4900 mentioned earlier (edition dated April 14). Short-term support is at 4400-4450 zone and investors may use price weakness to include frontline and select mid-cap IT stocks in their portfolio. Stop loss for long positions may be placed at 4390.

Key pivotals:
State Bank of India (Rs 1,443.4): A bearish trend prevailed as anticipated last week.The stocks from the banking sector continue to reel under bear assault and there appears to be hardly any respite. The stock appears on course to hit the support zone of Rs 1,300-1,350. Fresh long positions may be considered on the evidence of support in this zone. A close below Rs 1,290 would have further bearish implications.

Cairn India (Rs 285.7): The anticipated short-term correction materialised and the stock dropped to the support zone of Rs 275-280 mentioned last week. The downward correction appears complete and long positions may be considered on a move past Rs 293. The stock could rebound to Rs 345-350 if the crucial support zone at Rs 273-275 is not breached. Stop loss for long positions may be placed at Rs 270.

BHEL (Rs 1,662.2): The stock has been in a downtrend since December 2007. The fall has been arrested at the crucial Fibonacci support zone at Rs 1,590-1,600. This range marks the 61.8% retracement of the rally from the low of Rs 765 (recorded in June 2006) to the recent high of Rs 2,925.

The stock appears to be tracing out a bullish “double bottom” pattern and a move past Rs 1,934 would confirm the completion of this pattern. The short term outlook is bullish and a move to Rs 1,890-1,900 appears likely. This view would be invalidated on a close below Rs 1,565.

Stock of the week:
Sintex Industries (Rs 419): The stock appears to be in the early stages of the next major upward move. A move towards the immediate target zone of Rs 510-520 appears likely.Long-term investors may find exit opportunities at levels beyond Rs 650. The bullish view would be force as long as the stop loss at Rs 369 is not breached.
From a short-term trading perspective, long positions may be considered with a stop loss at Rs 390. Though the breach of Rs 390 would impart short-term weakness, it would not negate the long-term bullish view. A close below Rs 369 is required to invalidate the long-term bullish view.

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.

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