Buy large cap stocks when the Sensex gives a breakout and close above 14725 with the low of the week as stop loss or 13946 whichever is lower.

Breakout or breakdown?

Last week’s headline last week was ‘Either breakout or Crash!’ The indication in the headline was certainly not the happening of a week but that we could be on course for either event. The Sensex opened at 14241.76 last week, attained a low at 14057.26 and moved up to form a weekly high at 14560.32 to finally close the week at 14467.36 and thereby showed a net rise of 297 points on a week-to-week basis.

The weekly trend has turned up as a result of the weekly close above the weekly reversal value. The weekly trend can turn down now on fall below 13946 and if the Friday weekly close is below 14316. Weekly resistance will be at 14666-14725, while the weekly support will be at 14361-14162-13946. In case of a breakout and weekly close above 14725, expect the rally to get extended towards 15169 at least.

Before going further, let us take up the wave count.

Review of the Elliot Wave Count to get the broad market picture: First Count: Wave 1- 2594 to 3758; Wave 2- 3758 to 2828; Wave 3-2828 to 12671; Internals of Wave 3 Wave i- 2904 to 3416 Wave ii- 3416 to 2904 Wave iii- 2904 to 6249 Wave iv- 6249 to 4227 Wave v- 4227 to 12671 Wave 4 Wave a -12671 to 8799 Wave b-8799 to 14723 Wave c-14723 to 12316 Wave 5- 12316 to 14683 Internals of Wave 5 Wave 1- 12316 to 13386 Wave 2- 13386 to 12425 Wave 3- 12425 to 14384 Wave 4- 14384 to 13554 Wave 5- 13554 to 14683 If the Sensex gives a breakout and close above 14725, the internals of Wave 5 can change. In that case, the modified count will be as follows: Internals of Wave 5 Wave 1- 12316 to 13386 Wave 2- 13386 to 12425 Wave 3- 12425 to 14384 Wave 4- Wav a- 14384 to 13554 Wave b- 13554 to 14683 Wave c- 14683 to 13946 Wave 5- 13946 to 14560 (This count will come into picture if the Sensex gives a breakout and weekly close above 14725. If this count comes into picture, then Wave 5 can travel up to 15133-15365-15596.)

If the support of 13946 gets violated without crossing the top then we are get into a longer retracement and corrective move. To start off with the first retracement would be the rise from 12316 to 14683. The retracement levels will be at 13780-13500-13220.

Strategy for the week

Buy large cap stocks when the Sensex gives a breakout and close above 14725 with the low of the week as stop loss or 13946 whichever is lower. If that happens, then expect a rise towards 15502-15982. Capitalize on this view, monitor the Sensex and trade in NIFTY irrespective of futures based parameters that determine the prices in the futures market. What matters is the trend and the trend is likely to be the same with discounts and premiums, which can keep happening and keep changing. The underlying factor is the view on the market. Accordingly, traders can play the respective strategies. Bottomline is the range of 14725-13900. Bullish, if the Sensex moves above 14725 and bearish below 13900.

As a first priority, exit weak stocks in loss or profit as the Sensex spurts to the resistance levels of 14666-14725 range. When the Sensex gives a breakout and close above 14725, buy strong stocks that can lead the rally and those which make new highs. Stocks that are within the 15% band of the 52-week high are the ones which have good strength.