Email
Print
ShareFall has pushed the market into oversold zone
Sensex (15,913.49): A bearish trend prevailed and the index moved a step closer to the support zone of 15,300-15,500 mentioned in earlier weeks.
Though the expected short-term uptrend did not materialise, the breach of the crucial trigger level of 17,000 sent out a clear message that the downtrend would gather momentum.
The anticipated expansion in volatility and the attendant explosion in price occurred during the week. This resulted in a massive collapse with the index registering a fall of 1,665 points for the week. The downward move has gathered steam and the anticipated retest of the January lows could happen soon.
As the recent fall has pushed the index into oversold zone, a pull-back rally may materialise during the course of the week. The immediate resistance is at 16,550-16,750 zone. The price patterns and the momentum behind the fall indicate that the index could drop below the target-cum-support zone of 15,300-15,500 mentioned in earlier weeks.
A close below 15,300 could lead to a test of 14,250-14,400 range. At the moment, the trend across daily, weekly and monthly time frame is bearish and the downward momentum could gather further steam in the next few weeks.
A quick and decisive overhaul of 16,850 (the mid-point of the huge black candlestick formed last week) is required to thwart bearish forces from wrecking further havoc.
Nifty (4,771.6): Except for a brief pull-back on Wednesday, the trend remained bearish in the remaining days of the week. The breach of the bearish trigger level of 4,940 negated the earlier short-term bullish view.
As it is normally the case, the breach of the trigger level led to a sharp fall and the index lost about 9% for the week.
As observed in earlier weeks, the index is on course to test the key support zone at 4,450-4,600. The immediate resistance is at 4,950-5,100. A drop below 4,170 would have dire consequences and the index could then fall to 3,400-3,500 range.
Considering that the corrections witnessed in the past four years have been sharp and short-lived, there is a possibility that the present corrective phase may be more time consuming.
From a medium-term perspective, we may well be in the early stages of a prolonged grinding bearish phase. This view is also corroborated by the scant regard of price to crucial support levels. This typically happens when bearish momentum is in full force.Only a close above 5,700 would mitigate the impact of the bear market tremors and would confirm that bullish forces are still in control.
CNX Bank Index (7,268.15): The stocks from the banking sector have taken a pounding in the past few weeks. The index is now pretty close to the crucial support zone of 7,090-7,150. This range marks the 61.8 retracement of the rally from 4,837 to the recent high of 10,756 and there is also a cluster of highs formed in this zone in July 2007.
It is imperative for the index to hold above 7,090 for the long-term bullish trend to remain intact. Else, the downward move would accelerate and could lead to a test of 6,000-6,100 range.
Key pivotals:
Dr Reddy's Labs (Rs 569.5): Even amidst the carnage witnessed last week, this stock managed to hold ground and was confined to a trading range. The recent price action has not negated the short-term bullish view expressed last week. A move to Rs 610-615 remains the favoured view. Stop loss for long positions may be placed at Rs 535.
Use a trailing stop loss in the event of a move past the target zone.
Hindustan Unilever (Rs 226.7): Along with the pharma, the stocks from the FMCG sector have displayed resilience during the week gone by. The short-term outlook is bullish and the stock could move to the immediate target zone at Rs 250-255. The bullish view would be negated on a close below Rs 216. Long positions may be considered with a stop loss at Rs 216.
Axis Bank (Rs 840): The anticipated upward move did not materialise and the stock dropped below the bearish trigger level of Rs 950. This has negated the short term bullish view and the stock could now drop to Rs 740-760 range. Short-term rally may be used to reduce exposures. Short term resistance is at Rs 890-920 range. Only a close above Rs 990 would negate the bearish view.
Stock of the week:
Balaji Telefilms (Rs 198.1): The stock appears to have hit a temporary bottom at the low of Rs 184 on Friday. The emergence of positive divergence between the indicator and price action lends credence to this view.
The stock could move to Rs 235-240 as long as the recent low of Rs 184 is not breached. Long positions may be considered with a stop loss at Rs 184 on a daily closing basis.
Note: The analysis and views epressed in this column are based on the
technical an lysis 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 investmentexposure in the stocks discussed above. Comments and feedback may be sent to bkrish16@gmail.com
