The Indian markets lived up to their reputation of being capricious and followed a logic of their own yesterday. The sensex opened with an upward gap of 47 points and remained above 4700 for most part of the day. It finally ended the day at 4696.60 with a gain of 28.33 points. Needless to add that the volumes continued to soar and the breadth was very good.

Going strictly by the trend following methods, the medium term outlook is still positive. The oscillators in the daily chart are still in the buy mode though they are overbought. The sensex has closed twice above its 200 day EMA. Yesterday it broke above the long-term trend line too. This outlook will remain put till the sensex goes below 4350.

The need for caution stems from our E-wave counts and few fundamental factors like the impending oil price hike and the weakness in the telecom and technology shares overseas. As per our E-wave counts, the third part of the corrective wave from the low of 3832 (23-05-00) had the targets of 4612, 4901 and then 5370. Since the minimum target has already been achieved, the next downward wave of the bear market can resume any time now. This wave can take the sensex below 4000 once more.

Our advice remains unaltered. Avoid initiating long positions at these levels and keep booking profits wherever possible. We should wait for a significant drop before going long again.

TODAY’S TRADING DAY

The most optimistic scenario for the day would be a sideways movement between 4750 to 4650. There can be an initial dip to 4673 or 4643. A recovery from here can make the sensex move in the above-mentioned range. Stops for long positions for the day can be at 4640. Targets beyond this level are 4595 and then 4549.

Resistance for the day would be at 4700, 4727, 4749 and ten 4779.

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