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ShareWith bears in control, Sensex headed towards the 13,700-14,000 zone
Sensex (15037.85): A failure to move past 16,800 coupled with the fall below 15,200 resulted in a sharp fall. The index is now headed towards the next target zone at 13,700-14,000 mentioned last week. The inability to hold at higher levels and the effortless ease with which support levels are being breached suggests that bears have a firm grip over proceedings.
The downward momentum is gathering steam and there are no signs of a slowdown of this acceleration. The immediate resistance is at 15,500-15,750. The next major resistance is at 16,000-16,100. This zone marks the 38.2% Fibonacci retracement of the fall from 18,314 to the recent low of 14,677. This range also coincides with gap area formed on March 13.
The overall trend would remain bearish unless this humungous area of resistance is taken out. Given the technical picture, it is pointless attempting to bottom-fish in such a market.
Long-term investors, who believe in the buy-and-hold strategy, may accumulate stocks in a staggered manner.
A safer approach would be to wait for the bearish tone to reach a crescendo and enter stocks after a confirmed 'buy' signal is triggered on the daily charts. Though this approach may result in buying stocks at slightly higher levels from the eventual bottom, it is the price to be paid for controlling risk.
Meanwhile, even as the equity markets bear the brunt of the growing economic uncertainty at the global level and to some extent the domestic level, the commodity markets have reached euphoric levels. From gold and crude oil to soft commodities, the chart patterns indicate that there could be a sharp downward correction at least in the near term. We might have also formed an intermediate top of some consequence in quite a few of these commodities.
Though it would be slightly premature to call for a major top to be in place, the risk-reward equation is definitely not in favour of those holding long positions. Investors who are holding profitable long positions in these commodities need to adopt a cautious stance and look for opportunities to reduce exposure.
Nifty (4,574): The failure to move past the resistance zone of 4,950-5,000 and the subsequent drop below the bearish trigger level of 4,575 has effectively negated last week's short-term bullish view. Bullish forces are still in troubled waters and are just not in a position to assert their authority beyond a day. The downward momentum is in full force and the index has to close above 4,850 to prevent further damage.
Till such time the index trades below 4,850, there will always be a possibility of a fall to 4,000-4,100.
Long-term investors need not entertain the thought of buying at every fall in order to ensure that they don't miss out on the next major upward move. A sustained uptrend would resume only after an extended period of consolidation and base formation. The selling force has to subside and buyers need to develop conviction to commit funds. This transition would take a while and the markets are unlikely to recover in a hurry.
CNX Bank Index (6456.6): The breach of trigger level at 7,090 has invalidated the short-term bullish view. The breach indicates troubled times ahead for banking stocks. The immediate resistance level is at 6,900, followed by 7,200. Until 7,200 is taken out, the index would be vulnerable to a test of 4,500-4,800. There is an intermediate support at 6,050-6,100, which could offer temporary respite. Investors may use rally to reduce exposures in banking stocks.
Key pivotals
GAIL India (Rs417.2): The short-term bullish view featured last week remains unchanged. The stock is likely to move to the initial resistance level of Rs440. A close above Rs440 could lead to a test of the next major target zone of Rs460-470. This view would be valid as long as the stop-loss level of Rs405 is not breached.
Tata Power (Rs1,053): The stock appears to have completed the distribution process in the past few days and appears poised to slide sharply in the short-term. A bearish "head and shoulder" pattern appears to have been completed and the stock could slide to Rs750-800. A close above Rs1,255 is required to invalidate the bearish view.
Axis Bank (Rs747): The price action during the week has confirmed the bearish view expressed earlier. The stock is on course to hit the next major support zone at Rs650-675. A fall to this support zone would be the preferred view, as long as the stock trades below the resistance zone at Rs900. Investors may reduce holdings on intermittent rally.
Stock of the week
Ranbaxy Labs (Rs450): This is one of the few stocks that appear bullish across all timeframes. The short-term outlook is bullish and a move to Rs500-510 appears likely. Long positions may be considered on weakness, with a stop loss at Rs415. A close above Rs510 could lead to a rally to Rs590-600.
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.
