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ShareSensex (15167.82): The market action was bullish and the index moved pretty close to the target zone of 15500-15700 mentioned last week. After touching a high of 15423, the trend turned bearish on Wednesday. The short-term outlook remains bullish and the index appears on course to hit the target zone of 15500-15700.
The crucial bearish trigger level for the index is at 14500. A break below this level would indicate that the index is headed towards a far deeper correction down to 13300-13500. On the contrary, the chances of the rally extending up to the major resistance zone of 15950-16100 would be intact if this level is not breached.
While the short-term outlook appears bullish, there is still a lot of scepticism about the nature and sustainability of the recent rally. In a situation such as this, it would always be prudent to let the market action provide clues about the extent and the nature of the rally. At the moment, there is no technical evidence to suggest that this uptrend is over.
A drop below 14500 would be one of the early indicators and stocks from the banking
and capital goods sector will invariably provide slightly earlier clues in terms of trend reversal. These stocks tend to act as a lead indicator at trend reversal juncture.
Nifty (4529.5): The bullish view expressed last week remains unchanged. The index is on track to move to the target zone of 4700-4750 mentioned last week. A look at the price behaviour over the past few years indicates that the index has a tendency to reverse direction at the 50% retracement level.
For instance, the June 2006 low of 2595 was just above the 50% retracement zone of the rally from the low of 1292 in May 2004 to 3774 in May 2006. More recently, the low of 3790 recorded last month was also at the 50% retracement of the rally from 1292 to 6357. And the rally from this swing low of 3790 met with resistance at 4539, which again was a 50% retracement of the earlier fall from 5299 to 3790.
By the same token, it would not be unreasonable to expect the current rally to extend up to the 5070-mark, which is the 50% retracement of the entire fall from 6357 to the recent low of 3790.
A rally to 5070 will be the preferred view as long as the support zone at 4150 is not breached. As long as this level is intact, the trend will be bullish and the possibility of a rally to 5070 will be the favoured view.
CNX Bank Index (6447.5): The banking index continues to display strength and it is on course to move to the target zone of 7200-7300 mentioned last week.
There is also a possibility of the rally extending up to the major resistance zone at 7850-8000.
Banking stocks, along with the ones from the capital goods sector, appear bullish and would act as a catalyst for the broad market rally. The bullish view for the index would be intact as long as the bearish trigger level of 5394 is not breached.
Key pivotals:
State Bank of India (Rs 1,522): After a strong move up on Tuesday, the stock was confined to corrective phase in the remaining three days of the week. The short-term outlook remains bullish and a move to Rs 1,750-1,800 remains the favoured view.
A move to this target zone would commence after a brief downward phase. A test of the support zone at Rs 1,350-1,400 appears likely. Long positions may be considered on weakness with a stop loss at Rs 1,290.
HDFC (Rs 2,513): The outlook is bullish and a move to Rs 2,750-2,800 appears likely. The stock has strong support at the Rs 2,300-2,350 range. Investors may take long positions on weakness with a stop loss at Rs 2,140. Take partial profits at the target zone of Rs 2,750-2,800 and a trailing stop loss may be used in the event of a surge past this target zone.
Bhel (Rs 1,783.3): After a sharp fall from the peak of Rs 2,925, the stock moved into a consolidation phase during the second half last month. The price patterns since this consolidation phase indicate that the next leg of the rally is underway. The stock could move to the immediate target zone of Rs 2,050-2,100. A close below Rs 1,550 is required to question the scope of further upside potential. Stop loss for long positions may be placed at Rs 1,550.
Stock of the week:
Astra Microwave (Rs 63.6): The stock has been in a major downtrend since September 2005. This downward move appears have been arrested at the recent swing low of Rs 36.5 recorded a few weeks ago. The subsequent recovery backed by increased trading volume suggests that the stock could seek higher levels in the near term. A move towards Rs 82-85 appears likely. The bullish view would be invalidated on a close below Rs 54. Long positions may be considered with a stop loss at Rs 54. Use a trailing stop 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.
