The trend remains up despite the correction and the first couple of days of next week should make the short-term picture clearer
S&P Nifty close: 5,676.05
Short Term: Up Medium Term: Up Long Term: Down
After a flat opening for the week, the Nifty sold off immediately as the bulls remained under pressure throughout the week, barring Thursday where we saw a smart one day rebound. The effect was a result of the overbought nature of the weekly oscillators. If one has to take out some positivity from last week’s correction, the Nifty did not break the low of the week ended 28 September 2012 (5,638 points). Volumes were higher as compared to the previous week as the Nifty closed 70 points (-1.23%) in the red. The histogram MACD which is above the median level moved lower indicating that even though the bulls remain in control, they cannot allow the prices to drift like this for too long.
The sectoral indices which outperformed were CNX FMCG (+2.02%), CNX Pharma (+1.63%) and CNX MNC (+0.06%) while the underperformers were CNX Realty (-4.47%), CNX Energy (-3.05%), CNX Media (-3.04%), CNX IT (-2.96%), CNX PSU Bank (-2.17%), CNX Auto (-2.09%) and CNX Service (-1.83%).
Here are some key levels to watch out for this week
• As long as the S&P Nifty stays below 5,688 points (pivot) the bulls will be under pressure.
• Support levels in declines are pegged at 5,624 and 5,573 points.
• Resistance levels on the upside are pegged at 5,740 and 5,803 points.
1. The Nifty has completed the 61.8% retracement level of the decline from 6,338-4,770 points pegged at 5,740.
2. The 78.6% retracement level of the fall from 6,338-4,770 points is pegged at 5,951 points, which also coincides with the top of the channel (in brown).
3. The Nifty is now moving within a sharp up sloping channel (in blue), support from which is pegged around 5,490 points and resistance is pegged around 5,898 points, this week.
4. We have remained above the previous weekly top of 5,629 points (24 February 2012) which is a sign of strength as long as it stays above it.
5. The weekly chart above also shows a channel (in brown) the resistance line of which is pegged around 5,970 points. This should be closely watched in the weeks ahead.
6. We have completed 89 weeks (Fibonacci number) from the top of 6338 points (05 November 2010) hence one has to keep a close watch whether the market starts correcting from around current or slightly higher levels.
7. The volumes were significantly higher as compared to the previous week, which was also the case a week prior to the previous significant top of 5,629 points (24 February 2012). Hence one needs to be alert for the slightest sign of a break of support.
We got a small dip after the Nifty broke through 5,694 points but it got support at the low of 5,638 points (28 September 2012) as well as the weekly pivot support which was pegged at 5,630 points last week. Therefore this 5,638 points level assumes significance from a short-term perspective. A decisive breach of this in close could result in the Nifty sliding down to 5,586, 5,515 or in a pessimistic scenario to 5,445 points which are the Fibonacci retracement levels of the rise from 5,215-5,815 points. This week should make the picture clear as to whether last week was just a correction and we resume the uptrend or the correction goes deeper which will be signaled by a decisive break of 5,638 points. Till then this choppiness and volatility will be there, which is treacherous for short-term traders. Wait patiently for the market to show its hand. The trend remains up despite the correction and the first couple of days of next week should make the short-term picture clearer.