16050-16500 a stiff resistance for Sensex.

The same analysts who were calling for 11500 or 3400 Nifty are back with targets of 18000 and 5500 Nifty !! ............ All this based on a possible inverted head and shoulders ... first it was normal Head and Shoulders.....

Had discussed about this patterns soon being discussed around 2 weeks back on 20th July -

Now lets get back to current view :

The three major considerations technically now are :

1) Bullish Flag

2) Inverted Head and Shoulders

3) Fibonacci retracement /momentum line and divergences.

Lets get into details now

1) Bullish Flag

The size of the flag : 1100-1600 points approx.

Breakout point : 14800

Possible targets: 15900-16400

On this basis we are almost closing on to the target zones if we notch up some more gains in coming sessions.

Had discussed about this flag and a re-test of its breakout but i had my doubts. CLICK HERE to check chart

2) Inverted Head and Shoulders

Right shoulder: 3000 points

Left Shoulder ; 2000 points approx.

Head size :8000 points

Possible targets : 17500-18000 and i wont take Head size here !!

The major issue out here is the shoulders are not symmetrical. Volume pattern doesnt indicate a build up which can give the market enough strength for a major move. Also even if it moves up sharply a re-test of breakout levels would be the next thing to watchout for.

Now why do i not take head size as the size is too huge for comfort. Faced similar concerns with a possible HNS on Sensex which had a head of 8k points also in many specific stocks head size was huge to give a target of sub zero also.

Ideally one would expect shoulder size to be reached which could be 17500-18000 but only a decent volume built up can confirm this pattern Else it wouldnt be worth looking into it... Still have my reservations for this pattern !!

3) Fibonacci Retracement / Momentum Line/Divergences

For the fibonacci retracement levels i have been consistently mentioningabout 16k ( 61% ) levels ever since 10k

The Fibonacci retracement of 61.8% comes to approx 16050-16196. This becomes an important level.

Momentum line is highly ascending which comes to 16.8k levels for the week and will keep sloping higher which clearly indicates no matter how high index goes from here its no more the super momentum !!

Early signals of negative divergences seen on many Indicators but they can continue to keep doing so for a long time. Though this is always a good caution sign.

Conclusion:

Quite a lot of things point to 16050-16500 levels as a very stiff resistance !!. So for the near term the best strategy should be to trade for extreme short term in specific stocks but mind you the leverage/volumes should not be increased !!

Investment buying should be very selective in midcaps/small caps which have not moved up but the index stocks look top heavy when we get closer to 16k.

Trading opportunities are abundant but one has to follow strict stoplosses and keep your risk in control . Why am i cautious - simple reason is we have accumulated lots of gains in the last few months and capital preservation is equally important !!

Cash is also a trading position !!

Will review whenever we get to the zone of 16050-16500. For now go with the flow but dont over-leverage/margin !! and be strict with discipline in trading.

We had alerted about increasing cash at 15500 Dot on -- CLICk HERe FOR LINK . So yet again would suggest to keep caution once we go towards 16k and be ready to review strategy again.

TOO TIRED so no stock specific views today on the BLOG !