Short-term bullish, but it’s safer to exit

Risk-reward is not favourable for longs

Sensex (18361.66): It was a tumultuous week of trading, to say the least. The markets were butchered on the first two trading sessions and some sense of sanity surfaced on Wednesday.

It is positive to notice that the index recovered ground quite swiftly after plunging way below the 17500-18000 support zone.

Given the present market conditions, it would be prudent to address questions such as whether a major bottom is in place or would a new high be made soon.

There is a lot of churning that needs to happen around current levels and the weaker hands stuck at higher levels need to be flushed out before any orderly recovery process can get underway.

The key resistance levels to watch are 18800-19200, followed by 19600-19900. The way the index behaves around these crucial resistance levels would provide a direction to the questions raised above.

There are more than quite a few alternative scenarios with equal probability of occurrence. Hence, we will wait for market action to provide further clarity.

Unless the index moves past the 21000 mark, it would be susceptible to a test of the crucial support zone at 16500-17000. A close above 21000 would indicate that the journey to the long-term target zone of 23500-24000 is underway.

From a short-term perspective, traders may position to buy stocks on weakness with an initial target of 19000.

Conservative investors may either lighten long positions at the resistance zone or tighten the stop-loss to prevent capital erosion.

At the moment, the risk-reward equation is not favourable enough to initiate long-term positional calls.

Nifty (5383.4): Similar to the Sensex, this index, too, breached its support zone of 4900-5000 and recovered ground with equal vigour. The short-term trend is bullish and the index is headed to the immediate target-cum-resistance zone of 5560-5620. A close above 5620 could take the index to 5850-5900.

It would be safer to exit or at least reduce long positions at these levels, as the possibility of a sustained rally appears bleak. As the retest of the recent lows is still possible, it would be prudent to adopt a cautious approach. A drop below 4880 would make life tough for the bulls; a close above 6020 would reinstate long-term bullishness.

CNX Bank Index (9752.3): The banking sector stood out amidst the mayhem last week. The sharp recovery over the past few days and the move past the initial resistance zone at 9690 lends a bullish fervour to banking stocks. A move past the next minor resistance at 10000 could push the index to 10600-10800. The short-term bullish view would be negated on a close below 9000.

Key pivotals:
Reliance Industries (Rs 2,609.6): The short-term outlook is bullish and a move to Rs 2,775-2,800 appears likely. Long positions may be considered on interim weakness with a stop loss at Rs 2,450. A close above Rs 2,830 could push the stock to Rs 2,930-2,950. Have a stop loss at Rs 2,450 for short-term trading positions and at Rs 2,350 for long-term holdings.

ONGC (Rs 1,015): The stock has taken a drubbing in recent weeks. The bounce off the recent lows at Rs 850 is encouraging and the stock could move to Rs 1,110-1,140. A close above Rs 1,140 could lead to a rally to Rs 1,180-1,200. Have a stop loss at Rs 920 for long positions. Fresh exposures may also be considered on weakness with the same stop loss.

Larsen & Toubro (Rs 3,890):  The sharp rally in the stock played a key role in bolstering benchmark indices on Friday. Short-term outlook is bullish and a move to Rs 4,030-4,050 looks likely. Major target-cum-resistance zone is at Rs 4,300-4,400. This stock should form part of any portfolio. Investors could consider long positions on weakness. 

Stock of the week:
Hotel Leela Venture (Rs 47.4): The stock appears to be gearing up for
the next major move up. A move to the immediate target zone of Rs 62-65 appears likely. Long positions may be considered at current levels and on weakness with a stop loss at Rs 42.

Though a close below Rs 42 would impart short-term bearishness, only a close below Rs 35 would negate the long-term positive view. This could turn out to be a multi-bagger over a two-year period.

(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)