Look at numbers before taking buy-sell call

The Sensex has stuck in a range for the last several weeks witnessing a time-wise correction since November 2010 with a double top formation around the all-time high i.e. 21,108. As per Perthe Elliotts wave principles,the Sensex has been correcting in a W-X-Y-X-Z form and currently wave C of wave Z is in process,which is the last leg of the entire fall. The equality target for wave C is around 16,000,which is also close to the

40-monthly exponential moving average i.e. 15,800. The key resistance would be the 20-weekly moving average and the 40-weekly moving average,i.e. 18,200 and 18,000 respectively. The Sensex has been facing resistance around the falling trend line since November 2010. On the daily chart,Sensex had formed a bullish island last year between 15,000 and 15,300,which will act as a very strong support zone.

Monthly charts

On the monthly chart the Nifty has been forming lower tops and lower bottoms since November 2010,which suggests that the medium-term outlook is weak and the Nifty is expected to continue the correction. The next key support on the monthly chart would be the 40-monthly moving average,i.e. 15,800 and the lower end of the Bollinger band,i.e. 15,600. On the quarterly chart it is clearly visible that the index has formed a double top around 21,108 with a negative close. The key support level is again coming close to 15,800 as the 20-quarterly moving average and the 38.2 per cent retracement level of the rally from 7,697 to 21,108 are coinciding.

Opportunity for investors

The index is expected to halt for time being at around 15,600 15,800 levels,where the index could give a pull-back or consolidate for some time. Overall the trend is down but there are stocks,which are down by 50 per cent to 70 per cent from their highs,which can give very good returns in the short term and in the medium term. The top BSE 100 stocks,can bounce and give sharp pullbacks of 10 per cent to 20 per cent. The risk reward on the downside on an immediate basis is not so favourable and now the market needs to halt before it moves down. So somewhere around 15,800 we will start a rally which would mostly get closer to 17,000. The index has not fallen off the cliff as it did in 2008 so there is always an opportunity to invest into group A stocks. For a systematic and disciplined investor,this kind of market corrections is actually an opportunity to jump into good quality stocks.

Buy and sell decision

Many stock market investors often wonder which is the best time to sell their stocks. Be it profits or loss,there are some situations when an investor takes the decision to sell. Many rely on instinct alone. However,consider these points to take a more prudent decision that wouldnt leave you repenting at a later date. Some investors sell when the prices go up and book profits. The up and down movement of a stocks price is no reason for an investor to make a buy or sell decision. Stocks are long-term investments that can effectively beat inflation. Do not sell based on current market conditions or economy. Unless the underlying business is negatively impacted owing to mismanagement or product failure,staying invested may not be a bad idea.

Systematic Investment Plan (SIP) is the best way to invest in stock markets or even in commodities. SIP is a feature,where the investment is periodical rather than making a lump sum investment. It is just like a recurring deposit with the post office or bank where you put in a small amount every month. The difference here is that the amount is invested in a stock.

Author is Senior Technical Research Analyst,Sharekhan