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A clear trend would emerge only on a convincing move above 18,500 or below 16,700

The much anticipated and required corrective phase materialised last week. Though the momentum behind the fall was quite dramatic, this was anticipated given the scorching pace at which the index had rallied in the earlier weeks.

It now remains to be seen how the index behaves at the crucial support level at 16,700-17,000.

As long as the index holds above the crucial support zone of 16,700-17,000 there would be a strong case for the quick resumption of the long-term uptrend.

And a close past 18,500 would confirm that the index is headed towards the next target zone of 19500-20000.

However, if this support is breached, the index could quickly slide to the more crucial support at 15,000-15,500 range which also coincides with a huge unfilled gap in the daily chart.

A decisive trend would emerge only on a convincing move above 18,500 or below 16,700. Investors may reduce exposures on a rally and use price weakness to accumulate fundamentally sound large-cap companies in a staggered manner.

Based on the recent price action, continuation of the downtrend after a brief rally is the favoured view.

In the meanwhile, there could be a sharp rally in the near term as the slide in the last few days has pushed the index into an extreme oversold region.

Such a short-term rally would be an opportunity to trim exposures as the index has to go through an extended period of churning, consolidation and correction before the next leg of uptrend can resume.

Nifty (5215.3):

The elusive correction came through this week and the index held above the crucial support level of 5000-5100 that was mentioned last week.

The sharp fall in the past few days has pushed the index into an oversold region and there is a case for a sharp upward spike in the near term. A close above 5500 would indicate that the corrective phase is over.

On the other hand, a close below 4900 would indicate that the slide is not complete as yet. Below 4900, the next crucial support is at 4550-4600.

Though the continuation of the downtrend after a brief rally is the preferred view, it would be advisable to wait for a confirmation before taking action. Keep a close tab on 5500 on the upside and 4900 on the downside.

CNX IT Index (4894):

Amidst the carnage witnessed during the week, the IT index stood tall and displayed admirable resilience.

The index managed to eke out a nominal gain of 16 points for the week, which is quite commendable in the context of a sharp slide in the broad market indices.

As observed last week, the index could move to a 5300-5340 range as long as the bearish trigger level of 4680 is not breached.

Only a close below 4200 would indicate that the medium-term trend has turned bearish. A rally to 5300 is the favoured view in the short-term.

Key pivotals:
Mahindra & Mahindra (Rs 728): The sharp slide in the market took a toll on this stock. The share price breached the first support zone at Rs 745-760 mentioned last week.

The stock could now slide to the next and the more crucial support zone at Rs 690-700. The long-term trend would remain bullish as long as this support level is not breached.

BHEL (Rs 2,052):

The stock went through a major correction as anticipated last week. The failure to hold above the first support of Rs 2,100-2,150 is indicative of the overwhelming downside momentum in the stock.

As a result, the stock could now test the next support zone at Rs 1,850-1,900. The long-term uptrend would be intact as long as the price holds above Rs 1,540.

Reliance Industries (Rs 2,469):

The short-term outlook is bearish and the stock could test the immediate support at Rs 2,200-2,250.

A close below Rs 2,200 could lead to the test of the vital support at Rs 1,800-1,900.

Investors may use the rally to reduce exposure and buy the stock at lower levels in a phased manner. Only a close above Rs 2,660 would reinstate bullishness.

Stock of the week:
Indoco Remedies (Rs 289): The stock was one of few that managed to buck the bearish trend witnessed on Friday.

The stock has been in a downtrend for quite a while and the bottom appears to have been established at the recent low of Rs 235.

The stock appears to be headed towards Rs 345-350 range in the short term. Long positions may be considered at current levels and on weakness with a stop loss at Rs 260.

(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)