Over the last few weeks, the Sensex has been in the congestion zone of 14724-13554. A higher bottom at 13946 seems to have been formed and the congestion has narrowed down. The congestion zone now is 14725-13946.

For the past few weeks, we have been indicating that the market is developing a situation of a breakout or a crash. The movement has narrowed further and we may see the Sensex breaking out or breaking down on either side of the range of 14724-13946. A pressure cooker like situation has already built up before the burst.

The weekly trend has turned up after the weekly closing on 22/06/07 at 14467 and can turn down on fall below 13946 during the week or if the Friday weekly closing is below 14336. Weekly resistance will be at 14666-14725-14740 while the weekly support will be at 14573-14484-14407. In case of a fall and close below 14400, expect a slide to 14227-13946.

In case of a breakout and close above 14740, expect the rise to get extended during the week towards 14996-15138 at least. To an outer extent, the Sensex can move towards 15875. Now, it all depends on how the Sensex is able to give a breakout and close above 14740. 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 14740, 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 14682 (This count will come into picture if the Sensex gives a breakout and weekly close above 14740. 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 getting into a longer retracement and corrective move. To start off, 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 14740 with the low of the week as stop loss or 13946, whichever is lower. If that happens, then expect a rise towards 15133-15365-15596 at least. Capitalise 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. Bottom line is the range of 14725-13900. Bullish, if the Sensex moves above 14725 and bearish below 13900. When the Sensex gives a breakout and close above 14740, 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.