The bulls should keep the last week’s low as a stop loss on longs and keep on booking profits in rallies close to the recent highs or around 5,400

S&P Nifty close: 5,227

Market Trend
 

Short Term: Up                 Medium Term: Down                     Long Term: Down
 

After a slightly lower opening the Nifty recovered to a recent new high in the current rise before profit taking saw it give up its gains. The Nifty finally closed near the lows down 89 points (-1.69%) in the red. The volumes were however lower than last week implying that it is not a serious cause for concern as yet despite the Nifty having risen for five weeks in succession. We have to see whether the Nifty is able to take out the trendline hurdle (in black) pegged around 5,400 points in any further rise.
 

The sectoral indices which outperformed were CNX PSE (+0.07%), CNX FMCG (-0.20%) and CNX Pharma (-0.23%) while the gross underperformers were CNX IT (-5.20%), CNX Metal (-3.19%) and CNX Service (-2.25%). The histogram MACD has moved lower marginally but is still above the median line. One has to watch this closely especially when it drops below the median line as the bulls will then be under pressure.

Here are some key levels to watch out for this week
• As long as the S&P Nifty stays below 5,264 points (pivot) the bears can breathe a bit easily. However, the trend is still up.
• Support levels in declines are pegged at 5,180 and 5,132 points.
•Resistance levels on the upside are pegged at 5,312 and 5,396 points.

Some Observations

1. The Nifty has completed the targets of 5,098 (38.2%) and 5,200 (50%) while it has come very close to 5,301 (61.8%) points retracement of the decline from 5,629-4,770 points.
2. Surprisingly the Nifty crossed the 5,260 points with consummate ease which creates the possibility that the ensuing decline might make a higher bottom above the recent low of 4,770 points.
3. We have completed 19 weeks from the recent high of 5,629 points. 21 weeks is a Fibonacci number hence one has to closely monitor the market from around the 21^st of this month.

Strategy

The Nifty did dip as expected but there was a lack of follow through support below the 5,263 points level. This implies that the bears have not been able to assert themselves as yet and are required to work a lot harder than they thought. As was mentioned last week that we might see a top on the 16^th-17^th after which another period of dullness might follow. Unless and until the 5,400 level is taken out decisively it will continue to be a bottleneck in the current recovery. After a firm start this week the Nifty is likely to become sluggish for a few days before making one more serious attempt to rally. If this too fails then one should sit up and take notice. As of now the bulls should keep the last week’s low as a stop loss on longs and keep on booking profits in rallies close to the recent highs or around 5,400.
 

(Vidur Pendharkar works as a consultant technical analyst & chief strategist at www.trend4casting.com.)