The beginning of this week as well as that of next week is likely to be volatile as the bulls try to stem the rot and the bears try to consolidate their position further

S&P Nifty close: 4,891



Market Trend

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

The Nifty opened flat, and after a pause, continued its decline as it sliced through the S1 level of the week (4,848) and almost went and hit the S2 level pegged at 4,768 points, as was envisaged in the last week's piece. From very close to this level the Nifty recovered smartly, on the last trading day of the week, on some bottom-fishing as well as short-covering to close with a marginal loss of 37 points (-0.76%). Volumes were, however, significantly lower as the Nifty ended marginally below the trendline (lavender) depicted on the weekly chart.

The sectoral indices which outperformed were CNX FMCG (+1.41%), CNX Pharma (+1.03%), CNX PSU Bank (+0.91%) and CNX IT (+0.59%) while the gross underperformers were CNX Auto (-5.33%), CNX PSE (-1.54%) and CNX Media (-1.18%).  The weekly histogram MACD continued to move further below the median line indicating that the bears are now having a stranglehold on the markets.

Here are some key levels to watch out for this week

• As long as the S&P Nifty stays above 4,879 points (pivot) the bulls can breathe at bit easy as the bears might have become a bit exhausted after the relentless hammering of the last four weeks.
• Support levels in declines are pegged at 4,801 and 4,711 points.
•  Resistance levels on the upside are pegged at 4,969 and 5,047 points.

Some Observations
1.    The Nifty is facing stiff resistance in the 5,135-5,185 area which has to be     taken out in close for the bulls to be shaken.

2.    Weekly averages turned negative implying that the bears have increased their grip on the market and immediate bottlenecks are pegged at 4,969, 5,047 and 5,110 (optimistic scenario) this week.

3.    For a very short term reversal, the previous week's high (4,957 points) has to be crossed in close, otherwise the bears continue to rule the roost.

Strategy
The bear domination continued and the recovery on Friday saw the Nifty make a 'hammer' (on the weeklies, though not a classical one), raising hopes of some respite from the bear onslaught. We also saw the Nifty almost touch the 78.6% retracement (4,768) of the rise from 4,531-5,629 points and the weekly indicators just venturing into oversold territory. All these point towards the likelihood of a small corrective rise taking place (though it will move up in fits and bursts and sailing would not at all be smooth). One should therefore cut shorts in any dips and wait for rallies close to the above mentioned resistance level before taking a fresh view of initiating shorts. For the purists the trend is firmly down (selling near retracement levels is the best option) and is not going to change in a hurry even though a small corrective bounce is likely. The beginning of this week as well as that of next week is likely to be volatile as the bulls try to stem the rot and the bears try to consolidate their position further.

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