Over the last few weeks, the Sensex was in congestion zone of 14724-13554 and acute pressure had built up for the week ended on 29th June’07, which led to our headline ‘ Pressure builds up’ in the last issue. Last week, the Sensex gave a breakout and closes above the earlier top of 14724 and released the pressure of the congestion zone.

The weekly trend has turned up after the weekly closing on 22/06/07 at 14467 and can turn down on fall below 14400 during the week or if the Friday weekly closing is below 14561. Last week, the Sensex opened at 14685.16 attained a low at 14638.88 and moved up to make a new high at 15007.22 to finally close the week at 14964.12 and thereby record a net rise of 310 points on a week-to-week basis.

In the earlier columns over the last few weeks, we had mentioned that in case of a breakout and close above 14740, expect the rise to get extended during the week towards 14996-15138 at least. Last week, the Sensex attained a high at 15007 and attained the expected minimum range on post breakout above 14740. Weekly resistance will be at 15101-15138. If this resistance gets crossed then expect 15469 at least and to an outer extent to 15875.

If we take the depth of the valley from14723 to 12316 and the 2 point upside 1.618 retracement level from 12316 is placed at 16196. A cluster of levels is at 15101-15138, 15467 and 15875-16196. Weekly support will be at 14870-14732-14638.

The breakout pressure has therefore been released and we could find the Sensex testing the weekly resistance levels of 15101-15138 and then cool off to correct towards the support levels. It could re-group and consolidate in order to take a leap to higher levels subsequently. Choppy moves can be witnessed it higher levels creating volatility. But if the net week-to-week closing basis is positive then intra-week and intra-day movements might not matter from investor’s point of view. Traders would face some difficulty in case of choppy moves. For traders, the only way to gain is to remain with outperforming stocks with higher relative strength.

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- Wav a- 14384 to 13554 Wave b- 13554 to 14683 Wave c- 14683 to 13946 Wave 5- 13946 to 15007 (Current upmove- Wave still in progress)

Strategy for the week

Corrective dips to support levels of 14870-14732-14638 can be used for buying. Traders can book profits in stocks, which witness sharp upmoves when the Sensex attains 15100-15138. Book at least partial profit from trading perspective and carry the balance for higher levels. As the Sensex spurts to higher levels, look to exit weak stocks that are giving losses and switch to stronger stocks. Weekly strength continues to be with Capital Goods stocks and stocks from Nifty Junior.