The Hindu Business Line : Sensex and Nifty: Short-term technical outlook

The stock market meltdown over the last two sessions has shaved off 11 per cent from the Sensex and 13 per cent off Nifty. Though the short-term outlook had turned negative after last Friday’s correction, the medium- and intermediate-term trends had remained relatively unscathed.

But the intra-day fall of almost 15 per cent in the Nifty on Tuesday has caused a definitive medium-term reversal as well. The momentum indicators in the daily chart are in the oversold region and seem ripe for a pull-back. But the deterioration in the weekly oscillators denotes that the outlook can remain subdued over the medium term.

Support Level

Where are the next supports for the indices? The Nifty has fallen exactly 30 per cent from its peak when it recorded the intra-day trough at 4448 on Tuesday.

The Sensex had lost 28 per cent. In other words, Tuesday’s low can prove to be an important support level for the near term.

The long-term moving averages present at 16578 in the Sensex and 4886 for the Nifty also make Tuesday’s range important.

In the bull market since 2003, corrections have mainly halted at 30 or 38.2 per cent of the previous up-move. If the indices have to regain their life highs, then it is imperative that the trough formed on Tuesday holds.

If the selling pressure continues, then the Sensex can slide to 14230 or 13618 in the near term.

The corresponding targets for the Nifty are 4305 and then 4058. Resistances on the way up would be encountered at 17094, 17575 and then 18963 (Nifty – 5021, 5177 and then 5628).

While failure to overcome the second resistance would be a sign of weakness, move above the third would mean that the pain is behind us.

We will review our Sensex outlook for 2008 in our next edition of Investment World.

More Stories on : Stock Markets | Technical Analysis

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page