Pare exposure in Reliance

B. Krishnakumar

The stock market ended the week on a strong note, after having ruled weak in the first two trading sessions.

The firm trend at the American bourses had a positive influence on the domestic market sentiment. The improved performance reported by old-economy stocks coupled with speculation pertaining to ITC-fuelled market rally on Thursday.

As mentioned last week, the Sensex reversed off the resistance area at 3069-3096 range. On Friday, the Sensex edged past the 3096 mark but failed to hold ground at higher levels. After touching a high of 3100, it turned weak to close at 3052.6.

The intermediate resistance level for Sensex is at around the 3150-3250 range. In the daily and weekly chart of Sensex, there is still no evidence to indicate the onset of a new bullish phase. The recent rally from the low of around 2595 ought to be viewed as an upward correction within a bearish market.

As mentioned in earlier weeks, the Sensex is likely to resume the earlier bearish trend once the ongoing rally dissipates. Only a move past 3250 would impart some sort of positive trend.

The focus this week is on Hindustan Petroleum (HPCL) and Reliance Industries. While the short-term outlook for Reliance appears a bit weak, HPCL could see a further rise in value. Existing holders could use price up moves to book profit or reduce exposure in these two stocks.

In the case of HPCL, a close above Rs 136 would trigger a buy signal in the Point and Figure chart. In the near term, the share price of the company could move to the Rs 148-150 range. Existing holders could remain invested while fresh buying may be considered if the scrip closes above Rs 136.

In the case of Reliance Industries (Rs 261), the medium-term outlook continues to remain bearish. The stock is likely to ebb below Rs 200 in the next few weeks. Considering the overall bearish outlook, existing holders could look for avenues to reduce exposure in Reliance. A close below Rs 248 could be used to take fresh short positions in the scrip.

Recommendation follow-up

The price movement in Grasim Industries and State Bank of India (SBI) was broadly on course with expectations. In line with recommendations, both the stocks ruled weak. The share price of SBI touched a low of Rs 180.05 on Wednesday. It has, however, recovered ground in the last couple of days.

As the scrip did not close below Rs 181, sell signal would not have been triggered in the SBI stock. As of now, only a close above Rs 200 would reinstate positive trend in SBI. Alternatively, a close below Rs 185 would impart bearish sentiment. Existing holders could remain invested and use price rally to clip exposure in SBI.

As expected, the share price of Grasim Industries ruled weak. It, however, failed to move towards the target price zone of Rs 320 that was mentioned last week. The short-term outlook for Grasim continues to remain weak. Only a move past Rs 295 would impart some sort of positive sentiment. As of now, it appears that Grasim could test the low of Rs 265 recorded a couple of days ago.

(Note: Recommendations in this column is based entirely on Technical Analysis using Elliott Wave and Point & Figure theory of the past price behaviour of the scrip concerned. There is a risk of loss in trading.)