Sensex Technical View :
In the chart posted 2 days back it was stated that markets could also drift down till 8300-8500 which would be around 80-85 % retracement which is also a possibility in such corrections. Now let us list yet again some technical observations.
1) 80-85% retracement.
After markets bounced back from 7700 to 10945 we are seeing a correction of a quick bear rally. In such a correction as per technicals could correct to a max of 80-85 % also and the counter rally would remain in place. The retracement zone is 8250-8400 in such a case. So till markets hold above these levels the bear rally remains intact. A deviation below this level would lead to a violent move. ( Before we saw violent moves when markets dropped below the 11k zone which was an important pattern and support zone ).
2) Downward Channel /Flag .
As we see from the charts we are forming a flag type pattern. The drift has continued on the lower side but is still in the flag or channel. The major directional trigger could only be seen if markets cross the flag with a volume supported move. Till we see a clear move above the flag we will continue to watch this pattern.
3) Counter rally should last 20-40 sessions or 4-8 weeks.
Few weeks back had put up this chart where we have discussed that markets should sustain above the low of 7700 for 20-40 sessions or even 4-8 weeks.
Although in previous rallies we bounced back 25 % in this we had a bounce of 42 % already but the fall was also 50 % . So it would be difficult to guess whether we have already seen a top for the counter rally or we still go beyond it. But ideally the markets should continue to close above the 7700 zone for 4-8 weeks frm the low.
ALTERNATIVE MOVE :
Above i have listed some of the technical observations which project towards a possibility of 8250 holding on for some weeks. But what if markets start closing below 8250 the next scenario could be very violent and difficult to gauge. We will look into this scenario only if it comes till then its a stoploss of 8200-8250 on Sensex for longs.
Stocks to watchout for :
It would be difficult to trade positional till Sensex doesnt cross 9500 or 8200 convincingly.
As of now the best bounce back candidates would be .
RIL , LnT , Idea , SBI, ICICI. LIC Housing , Punj Lloyd in the large caps.
Market Observations and Thoughts :
The market consensus continues to remain very bearish with lots of justifications for newer lows very quickly. Can markets surprise against the consensus is the thing to watchout this week.
More updates on this section in the week.