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ShareBut, there is nothing to suggest a reversal of the medium-term downtrend
Sensex (13454): The market action last week was marked by a high degree of volatility. The key support level of 13600 was broken and the index registered a weekly close below it. This is a sign of weakness and the only positive sign is that the critical bearish trigger level of 12300 is still intact.
The price action during the week coupled with the oversold condition in the weekly and monthly charts suggests that the recovery attempt witnessed on Friday could continue in the near term. This could take the index to the immediate resistance zone at 13900-14200. The bullish trigger for the index is at the earlier swing high of 14450.
Continuation of the downward move would be the preferred view as long as the index holds below 14450. A close past 14450 would indicate that a bottom of at least medium term significance has been established at the recent low of 12822. On the contrary, a close below 12822 would send a strong signal that the index is headed towards June 2006 lows.
Going by the recent price action and the overall technical picture, there appears to be a strong possibility of the continuation of the downtrend after a brief technical pullback up to 13900-14200 range.
As emphasised in earlier weeks, it would be advisable to let the market provide clues about the medium term direction. At the moment, there is nothing to suggest the reversal of the medium-term downtrend. Until there is evidence to that effect, it would be prudent to take long positions from a short-term trading perspective and profits must be taken fairly quickly as the trend in the higher timeframes are distinctly bearish.
Nifty (4016): A bearish trend prevailed and the index dropped below the crucial technical-cum-psychological support level of 4000. Though the index staged a sharp recovery to close above this level, the overall price patterns do not infuse bullishness.
The recovery on Friday appears to be a relief rally in an overall bearish phase.
A test of 3550 would be the preferred view till such time the index moves past 4350. The immediate resistance is at 4130-4150 zone. The expectation is that the index would reverse its course at this resistance zone and continue its journey to 3550. Unless there is a sustained bullish momentum to take the index past 4350, the chances of a sustained upward move appear slim.
CNX Bank Index (4991): A bearish trend prevailed and the index dropped to the target zone of 4750-4800 mentioned in earlier weeks. It is positive to note that the index bounced off this support zone and closed on a positive note on Friday. The short-term outlook is bullish and a move to 5450-5500 appears likely.
With fundamentals still not supportive of a bounce-back, the scope for a sharp and sustained upward move would be limited. A close past 6455 is required to indicate that a trend reversal is in place. Else, the chances of a drop to 4250-4300 cannot be ruled out.
Key pivotals:
Larsen & Toubro (Rs 2,381.45): A short-term bottom appears to be in place at the recent swing low of Rs 2,100. The subsequent price action in the last few days has lent credence to this view. The short-term outlook is bullish and a move to Rs 2,525-2,550 appears likely. A close past Rs 2,560 could push the stock to the next major resistance zone at Rs 2,850-2,900. At the moment, a move past Rs 2,550 appears unlikely. Traders may use intra-day weakness to build long positions with a stop at Rs 2,190.
Bhel (Rs 1,500): The price action in the recent weeks suggests waning downside momentum, which is indicative of a steady drop in aggressive sellers as the price has drifted down. The stock has recovered from the recent low of Rs 1,325 and appears headed towards the immediate resistance zone at Rs 1,600-1,625. Stop loss for long positions may be placed at Rs 1,390. Evidence of resistance around Rs 1,600-1,625 may be used to take short positions with a stop loss at Rs 1,690 and target of Rs 1,350.
Tata Steel (Rs 640): After a bout of outperformance, this stock has broken key support levels in recent weeks. A drop to Rs 550-565 appears likely. The immediate resistance is at Rs 700-710. Short positions may be considered on a pull back towards the resistance zone with a stop loss at Rs 755. The stock has to close above Rs 765 to question the possibility of a fall to Rs 550-565.
Stock of the week
Orchid Chemicals (Rs 257): After being range-bound for a while, this stock has displayed signs of pushing to higher levels. The short-term outlook is bullish and a move to Rs 290-295 appears likely. The bullish view would be invalided on a close below the stop-loss level of Rs 225.
Fresh exposures may be considered on weakness with a stop loss at Rs 225. A close past Rs 295 could push the stock to Rs 325-330. A rally to Rs 325-330 would
be the preferred view till such time the recent swing low of Rs 215 is not violated on a closing basis. Long-term traders and those willing to take risk may settle for a more aggressive stop loss of Rs 215.
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.
