In the last issue, we had indicated that the Sensex had been bruised for the week ended Friday, 8th June 2007. Last week ending Friday, 15th June 2007, the Sensex witnessed a tug of war between the bulls and the bears. Typically, after a sharp knock, we tend to witness indecisive movement. Last week, the movement was indecisive with Long Legged Doji formation after an Engulfing Bear candlestick pattern.

The Sensex, last week, opened at 14170.81 attained a low at 13946.99 and moved up to form a weekly high at 14326.55 but finally closed the week at 14162.71 and thereby showed a net rise of 117 points on a week-to-week basis.

The weekly trend has turned down after the weekly closing on 08/06/07. The weekly trend can turn up on rise above 14725 or if the Friday weekly closing is above 14284. In case of a breakout and weekly close above 14725, all the equations would change. What looks to be a correction may ultimately land up as a launching pad for a breakout if the low of 13946 is not violated in days to come. The effect of the bearish candlestick pattern that was formed after the week ended on 08/06/07 will get negated if we witness a breakout and close above 14725.

Weekly resistance will be at 14343, 14570 and 14724. Weekly support will be at 14063 and 13946. In case of a fall and close below 13946, expect the retracement and the corrective mode to continue towards 13780-13500-13220. The retracement levels are of the rise from 12316 to 14683. The minor rise that we witnessed last week from the low of 13946 can be termed as the pull back rise of the fall from 14683 to 13946. If the effects of the Engulfing Bearish candlestick pattern are to be witnessed, then the recent low of 13946 will be violated. For the time being, we can take a bias of a further corrective down move till the top of 14724 is not getting crossed.

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 above wave count proves to be true, then we are looking for a larger degree of correction. The retracement, in this case, would be of the rise from 2594 to 14683. In that case, the 0.250 and 0.382 retracement levels of the rise from 2594 to 14683 will be at 11645 and 10086.

Strategy for the week

Short-term traders and investors do not have much choice but to exit long positions in loss or profit on Sensex spurts to 14343-14570. This view may not be applicable to stocks other than Sensex stocks. But as a general strategy, it would be better to exit long positions in weak stocks and get into stocks, which make new historical highs and not just a 52-week high. Traders can sell on rally to 14343-14570 with a stop loss of 14725 or a Friday weekly closing stop loss of 14284.