Sensex seems on course to 21k in three months

The markets rallied sharply for the third straight week, backed by solid gains from the banking and energy shares. The realty, cement and sugar stocks too shone towards the end of the week.

The Sensex easily overcame the 19,550 resistance mentioned last week, and ended with a gain of over four per cent (795 points) at 19,595. In the process, the index has gained a whopping nine per cent (1,597 points) in the last three weeks.

Among the index stocks, DLF zoomed over nine per cent to Rs 352. HDFC soared 8.5 per cent to Rs 684. Reliance and HDFC Bank rallied seven per cent each. ICICI Bank, Maruti, Reliance Infrastructure, Sterlite, TCS, Larsen & Toubro and Hindalco gained between four to six per cent. BHEL, however, declined 1.4 per cent to Rs 2,444.

Since the index has closed convincingly above the 19,550-mark, the index looks likely to target 21,000 in the next three months. The same will be negated only if there is a sharp fall and the index drops below 17,500, which looks highly unlikely at this moment. However, I shall update on the same in October.

Next week, the index may rally to the 20,000-mark, while intra-week correction could see the index seek support around 19,300-19,100.

Given the fact that the markets are in overbought zones, and having rallied almost nine per cent in the last three weeks, some sort of consolidation seems warranted. Currently, there are no indicator of any weakness, however, one should keep a keen eye on the nine-day RSI and Stochastic slow, which may be the first ones to give a negative divergence.

The NSE Nifty rallied 245 points to settle at 5,885. The index seems to set its sight on the 6,000-mark. In fact, 6,050 looks a possibility next week. However, profit booking at higher levels could see the index decline around 200-250 points from the expected highs.

In most cases, the Nifty should sustain above the 5,700-5,785 support zone in the near term. Only a break of 5,700 could trigger fresh weakness up to 5,500.