Hitendra Vasudeo,stockmechanics.com

The overall market is in a trading orbit now and traders buying must book profit and churn to get into new momentum stocks. Buy on breakout and close above 14725 and on corrective dips to support of 14540-14398 with a stop loss of 14300.

Breakout above 14725 still eludes

By Hitendra Vasudeo

Last week, we had mentioned that the Sensex must surpass 14725 but it has not been able to do so, while most other indices have made new highs, especially the Nifty. We will have to wait for the Sensex breakout for all round movement in front line index based stocks. Some signs of recovery from underperforming stocks have been witnessed. Therefore, the Sensex has a fairly good chance to give a breakout and close above 14725.

If Friday's close is above 14725 and if the close is as high as possible, then expect a strong rally. Intra-week rise and a daily close will not serve much purpose for a breakout now. Therefore, a weekly breakout and close above 14725 is much desired to get the favorable stock moves in front line stocks. Last week, the Sensex opened at 14536.61, attained a low of 14368.40 and moved up to form a weekly high at 14682.10 to finally close the week at 14570.75 and thereby showed a net rise of 232 points on a week-to-week basis.

The weekly trend has turned up after the weekly closing on 18/05/07 of 14303. The trend can turn down on fall below 14046 or if the Friday weekly close is below 14252. Weekly resistance continues to be at 14600-14725. In case of a breakout and close above 14725 followed by a weekly close above 14725 can take the Sensex up to 15026 at least. If the breakout and close above 14725 is strong and shows a sustainable move, then expect the rally to 15500 at least.

Weekly support will be at 14540-14398-14300. A fall and close below 14300 could puncture the move or take the Sensex in a sideways move to consolidate once again. If that happens, then expect the Sensex to move down towards 14086 at least. Till the Sensex is above 13500, all hopes of short to medium term bull move will remain alive with minor corrections and volatile moves.

We cannot move further without mentioning about Nifty Junior, which is the new addition to the futures trading market. It has strong chart and is identical like the BSE CAP GOOD sector index. Future traders can go long on Nifty Junior and expect a rise towards 9008 at least from the current levels of 8086.

Overall among the indices, expect strength in BSE CAP, Nifty Junior, BSE Bankex and CNX MID CAP. The strength in these indices would continue. Weaker indices like BSE AUTO and BSE IT might offer some spurts like a laggard rise, which could help the front line indices to build a base. But these sectors could be the overall draggers. On the whole, the broad market health looks reasonably good but it now depends on some selective front liners that are underperforming and preventing the Sensex from flying.

Once again, we move back to our Elliot Wave count, which gives us the broader overview of the market. 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 14682 (current move in progress) 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 14682 (current move in progress) Alternatively, Wave 4 could still be in progress with the formation of an Expanding Triangle. If we get into an Expanding Triangle, then the following will be the internals of Wave 4: Wave a -12671 to 8799 Wave b-8799 to 14723 Wave c-14723 to 12316 Wave d- 12316 to 14682 (not yet complete, current move in progress)

In an expanding triangle, each wave exceeds the previous move and retraces back the whole gain as well. In this case, if Wave d has begun then it could move to cross the top of 14724 and retrace back the whole rise back to 12300. Wave d in that case will cross 14724 and Wave e after the completion of Wave d will move down towards 12300. Once ‘a-b-c-d-e’ formation is complete, expect a rally once again to make new highs for Wave 5. But this Wave 5 can also be a failure.

After reviewing the wave count, the earlier argument of stiff resistance at higher levels gains importance and for any further sustained rally the top of 14724 has to get crossed at the earliest. The overall market is in a trading orbit now and traders buying must book profit and churn to get into new momentum stocks. We are now ripe to fly and a final breakout and close above 14725 is required on daily and weekly basis.

Strategy for the week:

Focus should always be on what is going up rather than looking at weak stocks. Getting into weak stocks could at times offer good returns but till they don't reverse, we cannot see their performance. Time is the big question for getting into weak stock. Therefore, avoid weak stocks and exit on a rise fully. In strong stocks, hold on to them or book partial profit to reduce the cost and get into next momentum stocks.

Buy on breakout and close above 14725 and on corrective dips to support of 14540-14398 with a stop loss of 14300. Traders can watch the Sensex outlook and play on Nifty. To get the Nifty view, readers need to subscribe to our weekly reports.
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Rajat K Bose, rajatkbose.com

While the selling on last Friday, especially towards the end, had been pretty brisk we need to watch how Monday's trading progresses and only if the Nifty were to stay below 4290 – 4287 range on a sustained basis then we would think of weakness.

June 04: While the selling on last Friday, especially towards the end, had been pretty brisk we need to watch how Monday's trading progresses and only if the Nifty were to stay below 4290 – 4287 range on a sustained basis then we would think of weakness.

The reason behind this is the tendency of such sell-offs to be a one-day affair and the gusher of liquidity in the monetary system. If, at all, the market has to show weakness the initial signs would be visible only after the Nifty falls below 4240 and closes there.

On the upside, the level of 4325 would continue to offer resistance and above that the next hurdle would be 4362.

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Anil Manghnani,Modern Shares & Stock Brokers

The upper targets for the Sensex are placed at 14630-14764-15100. For the Nifty, if it can sustain above 4300, it can rally to 4333-4352-4390

Although the markets continue to rally, the charts are getting stretched out and thus I feel we may be in the final stages of the current rally. The markets may once again begin to witness selling pressure in any up move from here on, and also one can expect the volatility to increase in the near term.

The upper targets for the Sensex are placed at 14630-14764-15100. For the Nifty, if it can sustain above 4300, it can rally to 4333-4352-4390. On the downside the supports for the Sensex are placed at 14439-14289-14251-13985-13778. For the Nifty these supports are at 4255-4211-4194-4112-4031.

The trading strategy in the short term would be to book profits at higher levels and buy the falls at the support levels strictly with a trading perspective.