Weekly Technical Analysis

The Sensex hit a new high of 17,979 points, but profit booking saw some paring of gains. The Sensex finally ended with a gain of 2.79% over last week on volumes which were significantly lower. The star performing sectoral indices for the week were CGS (+7.24%), Oil & Gas (+5.73%), Tech (+3.58%) while the losers were Bankex (-2.58%) and FCMG (-2.51%).

Last week, the Sensex almost hit price cycle Expansion (PCE) target (17,996 point) of 12,425-15,869-13,779 points. The alternate cycle projection (ACP) target of the same move is 18,159 points. Therefore, one has to be cautious of any further rise as far as the short term is concerned. However, their is nothing to worry about in the medium and long term. Traders should keep a stop loss below 17,632 points, while the medium-term support are at 17,073 and 16,797 points. Till these support levels hold, the upside price for this week are 18,159 and 18,466 points.

The recent rise in Fibonacci retracement levels from 13,779-17,979 points to 16,375 (38.2%), 15,880 (50%) and 15,384 (61.8%) are supports to watch out for in the weeks ahead. The previous top of 15,869 points is also a strong support.

The next 2-3 weeks indicate that a short-term top is ‘probable’ (no confirmation though as yet) and volatility is likely to be extremely high. The short-term indicators are in the over-bought territory, which implies that one should book profits in any further rise. A sudden announcement of elections could create a hiccup in this juggernaut. Medium and long-term players should use corrections as buying opportunities.

The sectors which outperformed the Sensex (+25.68%) by a significant margin from the recent low (in close) of 14,141 points (August 17, 2007) are metals (+43.94%), oil & gas (+36.12%), and the capital goods sector (+30.86%). Therefore, stocks belonging to these sectors should be bought for trading purposes whenever they get oversold in short-term corrections. Banking is also a sector to bet on during corrections with a medium- to long-term horizon.

However, from a trading perspective, one has to take a contrarian call and look for buying opportunities in sectors that have been subdued or have underperformed during this period. Even the IT sector stocks, which are currently underperforming the market, could see a gradual recovery. Taking this contrarian stance one should look to auto and healthcare stocks.

Tata Motors (Rs 779.70)

From the auto pack, Tata Motors looks interesting from a medium- to long-term perspective. In fact, if it consistently closes above the Rs 800-mark on high volumes, it has the potential to move up to the Rs 900-925 area in the medium- to long-term with some resistance at Rs 845. Support in declines is pegged in the Rs 720-735 range.

Amtek India (Rs 173.25)

The weekly chart of Amtek India shows a big sideways movement between Rs 135 and Rs 186 for almost 11 months. The weekly averages are positively phased and the weekly oscillators are also indicating strength. There is strong support pegged in the Rs 157-162 range. One can buy at current levels as well as accumulate in declines for the next 3-5 months with a minimum upside price target of Rs 216 and a maximum of Rs 235.

Biocon (Rs 498.75)

Biocon has finally succeeded in crossing the crucial resistance zone of Rs 475-485 on very high volumes. One can buy in dips with a strict stop loss below Rs 471 in close for a minimum target price between Rs 530 and Rs 555 in the short term and Rs 585 in the medium term.