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A close above 4,815 will trigger short covering

We could see the Nifty head higher till around the end of the current F&O settlement albeit with a small dip after the 13th. One should remain long with a strict stop loss pegged below 4,588 points. We are likely to witness good swings in the market in the next couple of weeks

S&P Nifty close: 4,746.90

 
Market Trend
Short Term Down            Medium Term Down            Long Term Down


The Nifty opened flat and dipped close to the S1 level of the week of 4,555 points where speculative buying with some short covering saw the Nifty recover smartly during the week to cross the R1 level. In a week of see-saw trade the Nifty finally ended 122 points (+2.65%) in the green. The sectoral indices which outperformed were BSE Capital Goods (6.22%), BSE PSU (+6.18%), BSE Bankex (+6.02%) and BSE Metal (+5.37%) while the underperformers were BSE FCMG (-0.30%), BSE Auto (+0.36%) and BSE TECk (+1.57%).   

The weekly histogram MACD remains below the median line confirming that the intermediate term trend is down but has been exhibiting a positive divergence, implying that there is likely some support at lower levels and a contra trend rise is likely. Last week’s recovery was on high volumes indicating slight strength. The trendline (in brown) which connects the tops of 5,360-5,099 points is pegged around 4,815 points, which is crucial resistance to watch out for this week.

Here are some key levels to watch out for this week
  • As long as the S&P Nifty stays above 4,709 points (pivot) the bulls can breathe a sigh of relief and the onus is on the bears to hold the market below 4,815 points from some short-covering to materialize.
  • Support levels in declines are pegged at 4,625 and 4,503 points.
  •  Resistance levels on the upside are pegged at 4,831 and 4,917 points.

Some Observations
1.    The bears are finding it difficult to sustain the pressure at lower levels.
2.    Resistance in rallies is pegged at 4,815 and 4,882 points (50% and 61.8% retracement levels of the fall from 5,099-4,531 points).
3.    Assuming that this corrective rise shows strength then resistance is pegged at 4,862, 4,965 and 5,068 points (38.2%, 50% and 61.8% retracement levels of the fall from 5,399-4,531 points) in the weeks ahead.
4.    The Nifty has corrected more than 61.8% retracement level of the recent rise from 4,531-4,800 points and held above the recent low which could result in a small recovery in the second half of this month.

Strategy
The bears have been able to defend the trendline resistance till now, which for this week is pegged around 4,815 points. We could see the Nifty head higher till around the end of the current F&O settlement albeit with a small dip after the 13th. One should remain long with a strict stop loss pegged below 4,588 points as a contra trend rise seems to be in the offing. We are likely to witness good swings in the market in the next couple of weeks.

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

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