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Sensex (13635.4): The index moved in line with expectations and moved within striking distance of the support zone at 12300-12400 mentioned last week. After touching a low of 12514, the trend turned distinctly bullish over the last two trading sessions.
Though the recent price action is quite encouraging in terms of initial momentum and the follow-up buying on Friday, technical evidence is not convincing enough to call for a significant bottom to have been established at the recent low of 12514. There are a few positive features such as the occurrence of a positive divergence between the price action and the 14-day Relative Strength Index in the daily timeframe. And the completion of a bullish "Hammer" pattern in the weekly candlestick chart is also a positive feature.
The clinching evidence would be a move past the bullish trigger level of 14650 to confirm that a trend reversal of some significance has been completed. Till such time 14650 is not overhauled, the chances of a drop either to or below 12300-12400 cannot be ruled out.
The immediate resistance is at 13950-14100; support is at 12700-12850. Short-term traders may tighten stop loss or take partial profits once the index nears the resistance zone.
Long-term investors may buy on weakness and capitalise on intermittent price upswings by exiting a portion of their holdings in long-term portfolio candidates. By resorting to a well-planned trading strategy, the average cost of acquisition of core holdings can be reduced by taking advantage of increased volatility, a characteristic of a market that is bottoming out.
Nifty (4092.25): After a weak trend in the early part of the week, the trend turned bullish on Thursday. Recent price action does not appear compelling enough to suggest that the worst is over. The chance of a test of the crucial support zone at 3550-3560 is not ruled out as yet.
The immediate resistance is at 4140-4160; the more crucial resistance zone is at 4200-4230. A clear trend would emerge only when the index clears either the bullish trigger level of 4230 or bearish trigger level of 3860. Until the index clears at least 4230, the chances of a continuation of the downtrend would be the preferred view. A drop below 3890 would indicate that the index is headed towards lower levels.
CNX Bank Index (5389.15): Sentiment towards banking sector stocks has improved in recent weeks. Reflective of this trend, the bank index has recorded a sharp upward spike and has moved closer to the resistance zone of 5450-5500. A close past 5500 would pave the way for a rally to 5900-5920.
On the other hand, a drop below 5100 would suggest a continuation of the earlier downtrend. Appropriate trading action may be considered with suitable stop loss in the event of a move past either of these trigger levels.
Key pivotals:
Larsen & Toubro (Rs 2,545): In line with expectations, the stock bounced back to retest the resistance zone at Rs 2,525-2,550. The stock could move to the major resistance zone at Rs 2,750-2,770. This would be invalidated on a close below Rs 2,330. Stop loss for long positions may be placed at Rs 2,330. A trailing stop loss may be used in the event of a move past the target zone.
State Bank of India (Rs 1,300): The stock was one of the star performers over the last two trading sessions. The stock is ruling close to the resistance level at Rs 1,330. A move past this resistance level would push the stock to the next target zone at Rs 1,500-1,520. Long positions may be considered on a move past Rs 1,330 with a stop at Rs 1,240 and target of Rs 1,500.
Indian Oil Corporation (Rs 381): Stocks from the oil refining and marketing sector have been butchered over the past few months and this stock was no exception. The recent cool-off in the price of crude oil has led to improved market sentiment towards this sector. The short-term outlook is bullish and the stock could move to Rs 405-410.
Long positions may be considered on weakness with a stop loss at Rs 347. As a contrarian strategy, short positions may be considered on the evidence of weakness at Rs 405-410 zone with an appropriate stop loss and target of Rs 360.
Stock of the week:
Voltas (Rs 126.4): The stock appears to be in an accumulation phase after a sharp and steady slide in the recent months. A move past Rs 129 would be a sign of strength; the stock could then move to Rs 143-145. On the contrary, a close below Rs 119 would be a sign of weakness and could push the stock to Rs 105-109.
Long positions may be considered on a move past Rs 129, with a stop loss at Rs 119. Profits in long positions may be taken on a move to the target zone. Use a trailing stop loss in the event of a sharp spike 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.
