A move past 15500 is likely, but may be after another leg down

Sensex (14546.53): After remaining under pressure for the best part of the week, the index staged a sharp recovery on Friday. Though the momentum behind the rally on Friday was quite encouraging, the inability to move past the bullish trigger level of 14800, coupled with the breach of the 14136 mark during the week, does not instill confidence.

The price pattern during the week does not confirm that Friday’s rally is the start of the next segment of a fresh upward move. The rally could fizzle out at the resistance zone at 14750-14850. The index has to move past the 15000-mark to suggest that the next segment of a major upward move is underway. Else, a drop to or below 13800 would be on the cards. 

As observed in earlier weeks, the medium-term outlook remains bullish and a move to at least 15500 would be the favoured view. The only area of uncertainty is whether the index would move to this target straightaway or after another segment of decline.

The price action and the overall pattern suggest that the index could chart another leg of decline before commencing a meaningful and sustained upward move. As always, it would be prudent to wait for the market action to confirm or negate the expectations. A move past 15000 would be a sign of strength, while a close below 14270 would indicate that the index is headed for lower levels.

Nifty (4360): The index ruled weak and also dropped below the prior swing low of 4248 established a week earlier. The price movement in the last few days can be best described as a “wash and rinse” pattern. This pattern occurs at crucial retracement support or resistance zone. 

In this instance, the break of the prior swing low at 4248 would have induced a lot of traders to take short positions in the index on Thursday. The sharp reversal on Friday (off the 50% retracement of the rally from 3790 to 4649) would have caught most of these traders unaware and would have forced them to cover their short positions. This partly explains the gap-up opening and the spike witnessed on Friday. 

Though the price action on Friday is quite bullish, the overall context and price patterns do not indicate that the next segment of the upward move is underway. The index is likely to move to the immediate target zone of 4450-4475 and resume the short-term downtrend subsequently. Until such time 4500 is taken out, either a test or a drop below the major swing low of 4159 would be the favoured view.

CNX Bank Index (6102.05): Courtesy the benign inflation number, the stocks from the banking sector led the rally on Friday. The short-term outlook is bullish and a move to the immediate resistance zone of 6250-6350 appears likely. The index has to clear this resistance zone to confirm that the index is on course to move to the target zone of 7200-7250. The trend would turn bearish on a drop below 5680.

Key pivotals:
State Bank of India (Rs 1,403.6): The price movement has been in sync with expectations and the stock is on course to move to the immediate resistance zone of Rs 1,450-1,475 mentioned last week. The stock has to clear this resistance zone for a meaningful rally to take shape. Above Rs 1,475, the stock could move to Rs 1,520-1,540 zone. Stop loss for long positions may be placed at Rs 1,320.

Infosys (Rs 1,749): The short-term outlook is bullish and the stock could move to the immediate resistance zone at Rs 1,875-1,900. This view would be valid as long as the bearish trigger level of Rs 1,640 is not breached. Long positions may be considered on weakness with a stop loss at Rs 1,640. A close past Rs 1,925 could push the stock to Rs 2,050-2,075.

Tata Steel (Rs 600): The stock staged a recovery right at the support zone of Rs 550-575 zone mentioned last week. The recovery on Friday is encouraging and the stock could move to the initial target zone of Rs 725-750. Long positions may be considered with a stop loss at Rs 555. Positional traders may accumulate the stock at current levels and on weakness with a target of Rs 850-875.

Stock of the week:
Ashok Leyland (Rs 33.6): The stock has been on a recovery mode after having dropped to a low of Rs 26 in early July. The price action since this low is bullish and the stock could move to the immediate resistance zone at Rs 38-40 zone. The bullish view would be valid as long as the stock holds above Rs 30.  Long positions may be considered with a stop loss at Rs 30 on a daily closing basis. Take partial profits on a move to the target zone. A trailing stop loss may be employed in the event of a surge past Rs 40.


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.