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ShareHowever, in the short term, Sensex is headed towards an overbought zone
Sensex (17,600): A bullish trend prevailed and the index managed to clear the resistance zone at 17,300-17,400 mentioned last week. The recent price action has reaffirmed the bullish view. The index is on track to hit the target zone of 18250-18400 mentioned in recent weeks.
From a short-term perspective, the index is heading towards an overbought zone. It is already in this zone in the daily timeframe and would soon get into overbought territory in the weekly timeframe as well. Though this does not necessarily mean that a sharp fall is round the corner, it would definitely be prudent to scale down long positions or be cautious in scaling up or taking fresh long positions.
The immediate support is at 16,700-16850. The bullish view and the possibility of a rally to 18,250 would be valid as long as the index holds above 16,700. Investors may use a trailing stop loss to protect unrealised gains while fresh funds may be committed on weakness.
Nifty (5,228.2): The index moved up and has managed to get past the resistance level of 5,200 mentioned in earlier weeks. Though it is positive to notice a weekly close above the resistance zone, the price pattern on Friday is not all that encouraging. Though the index closed with a 62-point gain on Friday, the sell-off from the day's high is a cause of concern.
It is classic "Reversal Day" pattern that was completed on Friday. The occurrence of this pattern after a steady uptrend and at a crucial resistance zone indicates that a short-term reversal may be at hand. A close below 5,197 on Monday would indicate that the index could get into a short-term corrective phase.
From a short-term trading perspective, put options may be bought or short positions may be considered in the futures market, with appropriate stop loss, if the index were to close below 5,197 on Monday. This could lead to a test of the crucial support zone at 5,000-5,030 range which is the upper end of the trading range that the index was confined to in earlier weeks. A break below 5,000 would suggest that the uptrend is losing momentum and it would be prudent to scale down long positions considerably.
On the other hand, a convincing close above Friday's high of 5,299 would trigger a "Smash Day" buy set-up as defined by noted technical analyst Larry Williams. This could result in the continuation of the recent uptrend.
Instead of hazarding a guess about the immediate directional move, it would make sense to wait for the market to provide clues about what is in store. The price action on Monday would be crucial for short-term Nifty traders as the index is at a point where nice tradable move is in the offing.
CNX Bank Index (7,872): A bullish trend prevailed as anticipated last week. The recent uptrend has helped the index clear the resistance zone at 7,750-7,800 and the next move to 8,450-8,500 appears underway. Investors may use price weakness to add exposures in banking sector. A close below 7,400 would suggest that the uptrend is losing momentum and would warrant reduction in long positions.
At the moment, the banking index is a strong uptrend and surprises, if any, would be on the upside. A close below 7,400 would be an early sign of weakness while a drop below 7,100 would negate the bullish view. With these parameters in place, investors may use appropriate investment strategy to capitalise on the anticipated move to 8,450-8,500.
Key pivotals:
Bharti Airtel (Rs 899): The stock was confined to a corrective phase during the week. The recent correction has pushed the stock closer to the support zone at Rs 870-880. Long positions may be considered if the stock rebounds from these levels. An evidence of support at Rs 870-880 is crucial for the next upward move to Rs 985-1,000. A move past Rs 920 would trigger a buy signal and could be used to scale up long positions with an appropriate stop loss.
Larsen & Toubro (Rs 3,141): After ranging price action, the stock forced its way up on Friday. It is imperative to hold above the Friday low of Rs 3,029 for the upward momentum to remain in force. A close below this level would result in a corrective phase. A move to Rs 3,250-3,300 remains the preferred view.
Cairn India (Rs 251.5): After a steady run-up, the stock has been in a corrective phase in the recent weeks. The recent correction appears complete and the next segment of the rally could get underway soon. The stock could move to the short-term target-cum-resistance zone at Rs 275-280. Long positions may be considered on price dips to the strong support zone at Rs 240-245. Stop loss for long positions may be placed at Rs 232.
Stock of the week:
Ashok Leyland (Rs 43): The price pattern has been shaping up well in the daily chart. The short-term outlook is bullish and a move to Rs 52-55 appears likely. The bullish view would be negated on a close below Rs 38. Long positions may be considered at prevailing levels and may be enhanced on weakness, with a stop loss at Rs 38.
NIIT Technologies (Rs 152): It is amazing to notice how Roger Babson's Action-Reaction tool works like a charm in this stock. The short-term outlook is bullish and a move to Rs 175-180 appears likely. Those willing to wait for a while may find exit opportunities at Rs 235-240. Have a stop loss at Rs 155 for long positions.
(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)
