Take profit on rise: Vasudeo

In last week¡¦s update, we had indicated that while a positive momentum was in existence resistances were still hanging overhead. The resistance zone was 11300-11500.

Last week, the Sensex opened at 10916.43 attained a low at 10719.18 and moved up to form a weekly high at 11367.23 before it finally closed the week at 11023.09 and thereby showed a net gain of 219 points on a week-to-week basis.

The Sensex faced resistance of the channels, retracements and the 200 day averages. On the weekly chart, we have an advanced block and a high wave candlestick pattern, which indicates that we could have momentary pause before a further rise or we could develop an intermediate top. Last week¡¦s low of 10719 will be an important support to protect the rise further from hereon. A fall and close below 10719 on daily basis first and later on weekly basis would form an intermediate top. On a sustained rise and weekly close above 11367, the Sensex can generate the potential to move towards the 38.2% retracement of the fall from 21206 to 7697 which is placed at 12857. If we take the retracement of the fall from 21206 to 8047, then 38.2% retracement will be placed at 13069.

A fall and close below 10719 on a daily and weekly basis can take the Sensex for a correction of the rise from 8047 to 11367, which is placed at 10091-9690-9307. The Sensex right now is like a football, which is in the centre for a kick-off!

Weekly resistance will be at 11367 and 12001. Weekly support will be at 10700.

The alternate count structure indicates that the entire fall from the peak of 21206 to 8047 is complete. In that case, the following can be the structure from the peak of 21206:

As per the above structure, the pull-back of the fall from 21206 to 8047 will be taken into consideration. In that case, the retracement level will be placed at 13100-14659-16268.

If Count II comes into existence, then a major leg is complete for a pull-back rise or the corrective cycle is complete and prepares the rally to conquer back the peak. But that may be too early to conclude and repent later on.

Both styles of count go together for the time being indicating an uptrend. If the Sensex crosses 12514, then a major leg of the corrective cycle will be completed. But we won¡¦t wait for that confirmation and must trade with the trend and see later if we get a confirmation. On a rise above 12514, Count I will no longer be valid but it did serve our purpose till now. The baton will pass on to Count II, which indicates one major leg completion. It will be called as Wave W and the rally will be major Wave X. Alternatively, a new rally, which can once again run for a few years will unfold, which will not only conquer the top but can move to unbelievable heights.

Do not get carried away and paint a rosy picture and make heroic analysis at this point. Be conservative and go step by step along the trend.

Conclusion

Last week¡¦s volatility resulted in an indecisive candle movement on weekly charts. Since the Sensex has tested the 200 day averages which are placed at 11185 and 11255, the next job in hand is to survive above 10700 and cross the 200 day averages on a sustained basis. We have had a significant pull-back from 8047 to 11367. Now, we are at the centre point of the football ground in the tug-of-war between the bulls and bears. This week will decide who has the upper hand from hereon.

Strategy for the week

The rise from 8047 to 11367 has been a trader¡¦s delight with the action heating up in the last 500 points. Short-term traders who have been holding long positions need to maintain a general stoploss of 10700 for the Sensex and Sensex based stks. BSE Midcap index stoploss for broad market stocks can be 3350. BSE Smallcap has stoploss for smallcap stocks at 3700. Traders must take profit on rise first and then think of getting into fresh trading ideas.