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Waiting for a correction

Waiting for a correction

The top 10 Sensex stocks are not looking positive. They strengthen the belief that a correction is due.

In my previous article, I had set a target of 17,249 for the Sensex. On 1 October, the index touched 17,196, just 53 points short of the target. That’s not much because these days the average daily volatility is around 200 points. So it is safe to say that our target of 17,249 has been achieved.

Trying to figure out the future direction of the market is always difficult. We are at the crossroads again. Last week, the markets received some cheerful news: Reliance Industries announced a 1:1 bonus, Infosys came out with positive Q2 numbers and the US markets were up over 3% during the week. Yet, this did not cheer the markets and the Sensex shed 3%.

What does this tell us? First, that the good news has been discounted by the market. Second, the market has climbed up too much and too fast. It is now tired and falling under its own weight. Will it be able to digest negative news at this stage? The market always looks for a trigger. Three positive triggers didn’t work during October 5-9. If there is a negative trigger, it will drive down the market harder.

Let us look at the technicals of some heavyweight stocks. We will only consider the top 10 stocks in the Sensex in terms of market capitalisation. These stocks control over 66% of the total market capitalisation of the Sensex.

Bharti Airtel looks weak. HDFC has returned from the stiff resistance zone of Rs 2,850, while HDFC Bank is trading against a stiff resistance zone of Rs 1,750. ICICI Bank has achieved the technical target of Rs 1,000 and has generated a negative weekly bar. Infosys has weakened despite positive quarterly results. ITC is trading close to its all-time high with a loss of momentum. L&T has achieved its technical target of Rs 1,650 with a loss of momentum. ONGC looks good and can climb to around Rs 1,300 in the near term. This isn’t a very high appreciation from the current levels. Reliance Industries is struggling despite the bonus. SBI has returned from a resistance zone of Rs 2,240.

These stocks do not convey a positive outlook and, in fact, strengthen the belief that the market is due for a correction. The maximum correction allowed for the bull move to remain intact is 15,000, with interim support coming in at 15,878. I’m not saying that the market will fall to 15,000 levels. What I am saying is that a correction to a level of 15,000 would also be in order and within acceptable technical parameters.

Prakash Gaba is a technical analyst and trader

Published on: Nov 05, 2009, 4:18 PM IST
Posted by: AtMigration, Nov 05, 2009, 4:18 PM IST