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Price action over next few weeks is crucial

Sensex (19162.57): The waning momentum behind the recent rally and the inability of the index to overhaul the resistance level of 20500 is a cause for concern. The occurrence of a bearish “Evening Star” pattern in the weekly chart is not healthy sign, either.

On balance, there are more reasons to be bearish than bullish from a medium-term perspective.

The recent weakness has pushed the index into a short-term oversold region. This could trigger a brief short-term rally towards 19500-19600 range. The overall weight of evidence, however, is in favour of resumption of the downtrend after a short-term bounce. The index has to clear 20100 to rule out further damage.

The immediate support for the index is at 18400-18500, a breach of which could lead to the test of the more crucial support zone at 17200-17400.

Though the possibility of a drop to 17200-17400 is not ruled out, the long-term bullish trend would not be affected by such an event. It would just delay the eventual rally to the target zone of 21500-22000.

The price action over the next few weeks would be crucial and would provide clues about the medium-term trend. Though a test of the 18400-18500 range, after a brief rally, is the favoured view, a surge past 20500 would indicate that the bulls are firmly in control. Judicious portfolio allocation and efficient money management would hold the key to achieving superior portfolio returns.

Nifty (5767): The index hit the crucial support zone of 5700-5750 range and staged a modest recovery on Thursday. With the expiry of the December series derivatives contract this week, price action will be choppy and volatile. The index is at a critical juncture and the price movement over the next few days would have a major impact on the direction of the next major move.

It is vital for the index to hold above the support zone of 5700-5750 and also move quickly past the resistance zone of 6000 for the uptrend to gain momentum. Else, there could be a case for a gradual deterioration in the bullish trend and the index could drift to the next support zone at 5350-5400. At the moment, there is a case for the index to test this support zone.

CNX IT Index (4594): After a weak trend in the early part of the week, the index staged a sharp rally on Thursday. The rally in software stocks played a key role in shoring up key market indices. The short-term outlook for the index is bullish and it could move to the short-term resistance zone of 4775-4800. A close above 4810 could lead to a rally to 5100-5200. The bullish view would be negated on a close below 4430.

Key pivotals:
Bhel (Rs 2,369): A bearish trend prevailed as anticipated last week. The stock is headed towards the crucial support level of Rs 2,100-2,200. A fall to this support zone would commence after a brief short-term rally. The immediate resistance is at Rs 2,550 and major resistance at Rs 2,670. Price rally may be used to trim exposures. Long positions may be considered at or below Rs 2,200.

Cairn India (Rs 223.4): The stock has displayed resilience amid the sell-off witnessed last week.The outlook remains bullish and a move to Rs 245-250 appears likely in the near term. Have a stop loss at Rs 209 on closing basis, for long positions. Fresh exposures may also be considered with the same stop loss.

Dr.Reddy’s Labs (Rs 722): After a sluggish start to the week, the stock staged a sharp comeback on Thursday. The price action on Thursday reinforces the bullish view and the stock is on track to move to the target zone of Rs 750-760 in the near term. The short-term support is at Rs 700 and more important support is at Rs 680. Have a stop loss at Rs 680 for long positions.

Stock of the week:
Mercator Lines (Rs 115): After a sharp run-up since October, the stock has been in a corrective phase over the past few weeks. This corrective phase appears complete and the downside risk appears marginal. Long positions may be considered at prevailing levels as well as on weakness. The immediate target is Rs 135-140 and the next target is Rs 152-155. Stop loss for trading positions may be placed at Rs 105. Though this stop loss is quite reliable, a breach of this level would not negate the short-term bullish view. Only a close below the bearish trigger level of Rs 98 would invalidate the positive 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. Comments and feedback may be sent to

bkrish16@gmail.com