The indices took a support at their 20 DMA after declining for four days in the last week and bouncing back smartly on Friday. The volume action was mixed as we saw big declines with strong volumes on Monday and Tuesday followed by low volumes on Wednesday and Thursday. On Friday, when the indices zoomed higher, we saw good volumes. Now, I would like to see a strong follow up of the rise seen on Friday. This will confirm that the indices are headed higher above the strong resistance of 4,700-4,750 for the nifty and 16,000 for the sensex. A strong follow up and a close past these resistance levels with strong volumes will mean higher levels towards the next target of 17,200 for the sensex and 5,090 for the nifty. On the other hand, if the breakout above these resistance levels is lukewarm, than the breakout could fizzle out and a bull trap could happen. Thus, the action in the coming week, especially on the first two days will decide the fate of the current intermediate uptrend.
The intermediate uptrend which had started on the 19th. August is still intact and the targets for the sensex and the nifty to drop into a fresh intermediate downtrend are at 15,356 and 4,576.60 respectively. The target for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 6,014.65.
The earlier intermediate bottom for the sensex is at 14,684 and for the nifty it is at 4,353.45. As long as the next intermediate correction ends above this level, the major uptrend remains intact. A drop below these levels will result in the end of the major uptrend. The equivalent target for the CNX Mid Cap index is at 5,634.40.
In the last week, the sensex ended 1.46% lower and the nifty ended 1.10% lower. The CNX Mid Cap index ended flat with a small gain of 0.07% and the BSE Small Cap index gained 0.43%. Among the sectors, the BSE Auto sector was the best performing sector gaining 4.54% and was followed by the BSE Reality sector which gained 0.20%. The BSE Capital Goods index was the largest loser ending 2.57% lower and was followed by the BSE Power sector which lost 2.29%.
The sensex had exhibited a gap between 15,275 and 15,362 and this gap acted as a support. This gap is still uncovered and this will act as a support to any decline. A close below this gap will mean weakness and will be bearish.
Select stocks have seen a strong surge in volume on Friday and these stocks could be headed higher in the coming week. Traders can look for long positions in these stocks and look for profits at the targets specified. Investors can also pick up long positions, but the market and the volume action in the coming week is very important. If the price and the volume action is strong investors can hold on to these positions and add more positions as the indices will breakout above the strong resistance levels and move higher. On the other hand, if the breakout is Luke warm, than look for profits at the resistance levels.
IFCI saw a strong rise on Friday with IFCI closing strongly past its strong resistance of 57.75 and is now headed higher. The daily and the weekly MACD indicators are in the buy mode indicating higher levels towards the next resistance of 67. Look for long positions near or just below Friday’s close with a stop at 51. Trail the stop as the stock moves higher. The relative strength line for the stock is bullish and suggests that the stock is outperforming the indices. The MACD Histogram had made a higher intermediate top in the earlier intermediate rise indicating higher levels in the current uptrend.
HIND. ZINC saw a strong rise with a strong surge in trading volumes on Friday. The stock broke out of the three weeks sideways triangle formation and is headed higher. The next important resistance to the stock is at 816 and 843 and once this resistance is crossed, higher levels towards the next target of 860 and 969 can be seen. Keep a stop at 720 for this long position and trail the stop higher as the stock moves up. The relative strength line has been higher tops and bottoms indicating that the stock is outperforming the indices.
PETRONET is another stock which has been witnessing a strong surge in trading volumes in the past two trading sessions. The price rise accompanied by a strong surge in trading volumes suggests higher levels in the current intermediate rise. The daily MACD indicator has exhibited a non-crossover and is bullish. On the weekly chart, the stock has closed past the first resistance of 75 and is headed towards the next target of 82. Use intra day dips and any minor decline to pick long positions with a stop at 72.
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