Short-term correction round the corner

Sensex (15318.6): A distinctly bullish trend prevailed in the last week and the index made an emphatic statement of intent by clearing crucial trigger levels at 14700 and 15100. The sustained rally and a close above these levels is a healthy sign and the index could now move to the 16000-16100 range; eventually, it could move to the next major target-cum-resistance zone of 16800-17000.

The rally over the past few days has pushed the index into a short-term overbought region. A short-term correction may be round the corner. Investors may book partial profits and may consider re-entry at lower levels. The erstwhile resistance levels at 15100 and 14700 would now provide support in the event of a correction.

From a longer-term perspective, the index still appears to be ripe for getting into a deeper corrective phase. The monthly charts are still bordering on the overbought region, even as the weekly charts indicate more room on the upside. Another significant corrective phase would materialise once the index gets into the overbought region in the weekly time frame. Given this backdrop, investors should be fleet-footed and take profits are regular intervals. 

Nifty (4464): This index, too, cleared the resistance levels of 4250 and 4350 mentioned last week. The index could move to the next target range of 4575-4600. While the short-term outlook is bullish, the occurrence of a bearish “Hanging Man” pattern in the monthly charts is a cause of concern.

Taking into account chart patterns in index heavyweights, there is still a lurking danger in the form of a deeper correction. It would be interesting to watch how the index behaves after it gets back into the overbought region in the weekly time frame. Though the influx of liquidity and market momentum could push prices to higher levels, it would be safer to remain cautious and take profits at higher levels or hedge long positions.

Key pivotals:

Tata Motors (Rs 701):A bullish trend prevailed and the stock moved to the target zone of Rs 710-720 mentioned last week. After touching a high of Rs 711, the stock closed a shade lower at Rs 701 on Friday. The trend is bullish and the stock could move to the next target zone at Rs 750-760. A move to this target zone would be under way after a brief correction. Investors may use price weakness to take long positions at the crucial support range at Rs 660-670, with a stop loss at Rs 645.

Tata Steel (Rs 690): Contrary to expectations, the stock displayed remarkable strength and was one of the star performers of the week. The momentum behind the rally was strong enough to the push the stock past the crucial resistance level of Rs 650. This has effectively negated the earlier bearish view. The stock could now move to the next target range of Rs 750-760. There is a strong support at the Rs 640-650 range. Price weakness may be used to take long positions with a stop loss at Rs 640.

 BHEL (Rs 1,888.5): The stock moved to the target zone of Rs 1,875-1900 range mentioned last week. The next leg of the uptrend would resume after the completion of a brief correction. The stock appears to be headed towards Rs 2,100-2,150. Long positions may be considered on dips, with a stop loss at Rs 1,730.

Stock of the week:

i-flex Solutions (Rs 2,031):  After touching a high of Rs 2,635, the stock has been in a downtrend over the past few weeks. Price patterns over the past few days indicate that a short-term bottom is in place at the recent low Rs 1,815. The short-term outlook is bullish and a move to Rs 2,250-2,300 is on the cards. This view would be negated on a close below Rs 1,950. Fresh exposures may be considered at prevailing levels and on weakness with a stop loss at Rs 1,950.
 
(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)