Bulls must be cautious as Sensex reaches upside target

The bulls felt a touch of warmth in the market trend last week like an unexpected caress, but it is time to get cautious.

In our column last week we had mentioned the possibility of the 30-share index touching 19,300 and it almost got there on Friday, just seven points shy.

Last week, the index was at resistance and we had mentioned that if the resistance level is cleared, the Sensex could go all the way up to 19,300.

That is exactly what it did after a sharp drop on last Tuesday. The Nifty, as we mentioned earlier, is weaker than the Sensex and has not reached the resistance level yet.

More from Business

Hyundai India’s Rs 27,870 crore IPO oversubscribed by 2.28X, largely driven by institutional investors How Indian fintech startups are driving Malaysia’s UPI-like digital payments revolution

Resistance levels are areas where the supply of stock far exceeds demand leading to a drop in price. Support levels, on the other hand, are areas where the demand for stock far exceeds supply leading to a rally in price.

[caption id=“attachment_1091983” align=“alignleft” width=“380”]  The resistance zone on the Sensex is between 19,300 and 19,400. So the index can go all the way into that zone before selling off. Reuters[/caption]

A look at the charts will show that the Sensex has reached the resistance levels that we had marked last week. ( For the combined chart, click here ) The chart on the top is that of the Nifty and the one below is the Sensex.

Impact Shorts

More Shorts

Chennai Ranks #1 in Challan Checks: ACKO Insights for Smarter Car and Two Wheeler Insurance Decisions

Tata Harrier EV vs Mahindra XEV 9e: Design and road presence compared

It is time for the bulls to book profits on all or at least part of their positions. Remember that we are in a medium-term downtrend and the possibility of the selloff from the current level of resistance is very likely.

Here are the scenarios that can play out. The resistance zone on the Sensex is between 19,300 and 19,400. So the index can go all the way into that zone before selling off.

For the Nifty, the resistance zone is 5721 to 5750. The resistance levels are shown by the solid red line above Friday’s close.

In case these resistance levels are breached, there is minor resistance level shown by the broken line. They are 19,570 for the Sensex and 5,815 for the Nifty.

A lot of times the market will go a little bit higher than the major resistance zone touch a minor supply area and then fall. Usually it happens when market operators take out the stop loss orders before reversing price direction.

If the market clears the minor resistance level then the path is clear for both indexes to go much higher. The target for the Sensex is between 20,250 and 20,440 and for the Nifty is 6,070 and 6,130.

These targets are shown by red horizontal lines at the top of the chart. A sell-off in the indexes can take them down to the levels marked by the blue horizontal lines.

The first downside target for the Nifty is 5,317 and 5,450 and for the Sensex it is 18,190 to 18,500. These are wide ranges but that is due to the fact that the market has been very volatile lately. The second downside targets are 5,120 for the Nifty and 17,375 for the Sensex.

A lot on how the market moves will be determined by the reaction of the US jobs report. The report came in below expectations and also has major downward revisions to previously published numbers.

This signals that the economy is not doing as well as expected in the US. The market speculates that this will force the Federal Reserve to postpone its tightening measures which is a positive for the stock markets and a negative for the US dollar.

The dollar fell across the board against major currencies indicating that foreign exchange markets perceives the news as a negative.

The US equity markets, on the other hand, had a volatile day and did not give any clear direction of its intention.