Email
Print
ShareInvestors should wait for clear signs of an uptrend before committing funds
Sensex (13760.78): A bearish trend prevailed as anticipated last week and the index took a huge knock on Friday. The weakness has pushed the index to the key support zone of 13600-13800 mentioned in earlier weeks. Now that the index is at a crucial support zone, it is imperative for a basing price action to develop around these levels to suggest that at least a short-term bottom is in place.
As observed last week, it would be premature to take a call on where the index is headed from a medium-term perspective. Investors would be better placed to let the market action provide clues about where it is headed from a slightly longer-term perspective.
At the moment, there is a possibility of the index forming a short-term bottom soon. Though there is no technical evidence to that effect yet, the sharp slide on Friday could be classified as a capitulation or a climactic action ahead of an eventual bottom. Investors may wait for evidence or some clues to indicate that the upward move is gathering momentum before committing funds into the market.
A move past Thursday's high of 14450 would be an early indication that the worst is probably over from a short-term perspective. On the contrary, a close below 13150 would be an early indicator that the index is headed towards June 2006 lows. A drop below 12300 would be a strong message and a confirmation that the June 2006 lows would indeed be tested.
In the light of these factors, it would be prudent to adopt a wait-and-watch strategy.
Remaining on the sidelines will not be a bad idea in a market that is plagued by a plethora of economic problems. With the corporate earnings season kicking-off, there is a case for increased volatility as earnings start trickling in and the market digests the same.
Investors may wait for crucial bearish or bullish trigger levels to be breached before committing fresh funds.
Nifty (4136.65): A bearish trend prevailed and the index has moved past the initial target zone of 4250-4300 mentioned in earlier weeks. As observed in recent weeks, the index is on course to test the crucial support zone at 4000, where there is confluence of support in the form of the August 2007 lows and the 61.8% retracement of the move up from the June 2006 low of 2595 to the recent high of 6357 recorded in January.
As long as the 4000 level is intact, it will not be unreasonable to expect a rally to at least 4450-4500. A drop below 4000 would be an early sign that the index is headed towards June 2006 lows; a close below 3500 would confirm such a possibility. A move past 4320 would confirm that the worst is over from a short-term perspective. Investors may wait for a break above 4320 before committing fresh long positions.
CNX Bank Index (5211): With inflation holding well above 11%, the Reserve Bank of India raised the repo rate and cash reserve ratio to address the situation. This has infused a fresh bout of selling in banking sector stocks. Scrips from the sector took a huge knock on Friday and the index recorded a fall of 301 points.
The outlook remains bearish and a drop to 4750-4800 is the preferred view. The index has to move past 5800 to limit the scope for further damage. Investors may use price rally to pare exposure in the sector and traders may consider short positions at higher levels with a stop loss at 6550.
Key pivotals: National Aluminium (Rs 333): Stocks from the aluminium sector have taken a drubbing last week. This stock has lost close to 23% last week and has also moved below the target zone of Rs 340-350 mentioned last week.
The recent fall has pushed the stock to oversold levels and a pullback rally may be round the corner. Immediate support is at Rs 315-320. Traders may consider long positions with an appropriate stop loss on the evidence of support at or around the Rs 315-320 range, with an initial target of Rs 400.
Reliance Industries (Rs 2,182): Time and again, this stock has managed to mitigate the damage to broad market indices. While the Sensex and the Nifty have posted weekly losses, this stock has recorded a gain of Rs 85. The short-term outlook is bullish and a move to Rs 2,275-2,300 appears likely. Long positions may be considered at lower levels with a stop loss at Rs 1,975. As long as the stock holds below Rs 2,450, the chances of fall to Rs 1,875-1,900 cannot be ruled out.
Bharti Airtel (Rs747): The stock is on course to move to the support zone of Rs 675-690 mentioned last week. A fall to this target zone would occur after a brief corrective rally to Rs 775-790. Investors may prune holdings on evidence of resistance at or beyond this resistance zone. Short positions may also be considered at higher levels with a stop loss at Rs 800 and target of Rs 675.
Stock of the week: GlaxoSmithKline Pharma (Rs 1,126.2): Stocks from the pharmaceutical sector have outperformed in 2008. Most of these have delivered positive returns over the past few months. After having consolidated in a tight range, the stock appears to be bracing for the next major move up. A close past Rs 1,155 would confirm a breakout and the stock could then move to Rs 1,350-1,400.
Long positions may be considered on a close past Rs 1,150, with a stop loss at Rs 1,050. Take partial profits once the stock reaches the target zone. Aggressive traders may use a trailing stop loss in the event of a move past the target zone.
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.
