The Hindu Business Line : Sensex (10680)

The willful and capricious traits of the markets were to the fore once more last week. Just as the consensus was veering towards a sharp fall, there was a sharp reversal on Monday and the Sensex did not look back after that for the rest of the week, barring Friday.

The shift in sentiment helped the markets to focus on the positive results emanating from corporates, sweeping aside such sundry matters such as a hike in short-term interest rates by the RBI and continuing geo-political tensions.

There are many positive takeaways from the charts last week.

Some of the momentum indicators in the weekly chart of the Sensex are entering into a `buy' mode for the first time since the slide started in May 2006.

The Sensex tested its 200-day moving average as well as its long-term trend line on Monday and bounced up from there, reiterating the importance of these supports.

However, we need to see the follow-up action this week in order to ascertain that this is not just a flash-in-the-pan kind of a move.

If we consider the upward move from the low of 8800, one leg of this move was completed at 10940. The fall to 9875 has retraced exactly 50 per cent of this upward move.

If the move from 9875 is the third leg of the upward move from 8800, it has the potential to take the Sensex to 11200 and then 12014. The 11200 mark is an important resistance for the coming weeks, as it is exactly 61.8 per cent retracement of the fall from 12671.

The preferred view for the medium-term is one of a range-bound movement in the Sensex between 11200 and 9700. This would be construed as a positive consolidation phase.

The outlook for the coming week is positive. But investors need to brace themselves to face some volatility as the Sensex nears the important resistance zone between 11000 and 11200. Supports for this week would be at 10129 and then 9723. Traders can buy in dips with a stop at 10120.

Nifty (3131)

The Nifty has the short-term targets on the upside of 3208 and then 3257. The 61.8 per cent retracement of the fall from 3773 is situated at 3323.

This would be the important resistance level to watch out for in the coming weeks.

Supports for the Nifty this week are at 2964 and then 2838. A bounce from 2960 levels would give good buying opportunity to traders.

Global Cues

Almost all the global indices have launched into the third leg of the upward move that began in mid-June. Some indices such as the Hang Seng, FTSE and the Thailand index have already crossed the peak of the first leg of the upward move. Other indices such as the Sensex and the Nifty are nearing this peak.

This week will be crucial for setting the tone for the next few months. We will know if a sustainable uptrend is going to be established in the equity markets across the globe or if we are going to be moving up and down in a range like a ping-pong ball.

Lokeshwarri S.K.

More Stories on : Technical Analysis | Technical Analysis

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