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Bearish candlestick pattern bodes ill for the market

Rally to 15,500-16,000 possible, but view would be invalidated on a breach of 12,660-12,700 support

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Rally to 15,500-16,000 possible, but view would be invalidated on a breach of 12,660-12,700 support
 
Sensex (13,786.91): Though the index ended 2006 on a relatively weak note, the overall performance has been quite impressive, with the Sensex recording a 47% gain for the year. There is a case for a rally to 15,500-16,000 and this view would be invalidated on a breach of the crucial support at 12,660-12,700.
 
The index is now at a critical juncture and the price action over the next few weeks would have significant implications for the long-term trend. A close below the crucial support zone at 12,660-12,700 would reduce the chances of a rally to the target zone.
 
A look at the monthly charts does not convey a healthy picture. The formation of a small-bodied candlestick with a longish lower shadow is a cause of concern. Though this pattern can be classified as “hanging man” in Japanese candlestick charts, it is not a perfect example of the same.
 
A close below 12,900 for this month would have bearish implications. A quick and decisive move past the immediate resistance zone of 14,150 would reduce the threat from the bearish candlestick pattern.
 
Nifty (3,966.4): The index closed above the resistance level of 3,950, which is sign of short-term strength. The Nifty still has to contend with the more crucial resistance level at 4,060, which would set the tone for the next leg of rally towards 4,200-4,250.
 
A move towards 4,200 would be the preferred view till such time the index holds above the long-term support of 3,700. The long-term trend would turn bearish if the Nifty closes below 3,700 for this month. 
 
Key pivotals
 
Infosys Technologies (Rs 2,241): After being confined to a narrow trading range in the earlier weeks, the stock staged an uptrend during the week gone by. The price action was in sync with expectations and the stock staged a breakout of the trading range on Wednesday.
 
The short-term trend is bullish and a move to Rs 2,450-2,500 appears likely. As observed last week, the short-term bullish outlook would be under threat only on close below Rs 2,145. The possibility of a rally to the target zone would be negated only on a weekly close below Rs 2,030.
 
Reliance Industries (Rs 1,271): The stock was confined to a trading range and the price action was devoid of any significant trend. The price pattern in the monthly candlestick price chart is a cause of concern.
 
The occurrence of a series of small-bodied candles in the monthly chart indicates indecision.
 
The price action for December has resulted in the completion of a “high wave” candlestick pattern, which again is a sign of indecisiveness. A monthly close below Rs 1,050 would be a bearish sign and would negate the possibility of a rally to Rs 1,550-1,600. A close above the immediate resistance level of Rs 1,320 would have positive implications and strengthen the case for a rally to the target zone.
 
Mahindra & Mahindra (Rs 906): The stock moved in line with expectations. A bullish trend prevailed and the stock has moved closer to the target zone of Rs 920-925 mentioned last week. The long-term outlook is bullish and the stock appears to be headed towards Rs 1,000-1,020. The possibility of a rally to this target zone would be negated only on a weekly close below Rs 740.
 
Stock of the week
 
Polaris Software (Rs 173): The stock has broken past the major downward sloping resistance line in the monthly charts. The breakout has been accompanied by an increase in trading volumes as well. The short and the medium term trend have turned bullish and the stock can be accumulated at prevailing levels and on weakness.
 
The positive outlook would be in force as long the stock holds above the stop-loss level of Rs 145. Only a weekly close below Rs 145 would negate the bullish view. The short-term target is Rs 195-200 and long term investors may get opportunities to exit at Rs 245-250. Have a stop loss at Rs 145 on a weekly closing basis for existing exposures and also for fresh long positions.
 
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