Nifty recovers after hitting 5171, but 5455 and 5516 are crucial resistance levels

Vidur Pendharkar 10 March 2012

With the Railway Budget, the RBI policy review and the Union Budget due this week, volatility is expected to be high. However if the above mentioned resistance levels are not taken out, all these events will turn out to be damn squibs

S&P Nifty close: 5333.55

Market Trend

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

The Nifty opened flat but continued to fall and touched the S1 level of the week from where it recovered on short covering as well as speculative buying. This saw the Nifty close the week with a marginal loss of 0.48%. The sectoral indices which outperformed were BSE Consumer Durables (+1.77%), BSE Auto (+1.62%) and BSE Bankex (+0.54%) while the gross underperformers were BSE Metal (-3.92%), BSE Oil & Gas (-3.17%), BSE Power (-2.48%) and BSE Capital Goods (-1.09%).

The weekly histogram MACD continued to move down but is above the median line indicating that a correction is on. A pullback did materialize from lower levels as was expected last week. Volumes were lower as compared to the previous week during the decline which also supports the correction theory as of now.

Here are some key levels to watch out for this week

As long as the S&P Nifty stays above 5,295 points (pivot) the bulls hold a slight edge in the near term even though the intermediate trend seems to be turning sideways.
Support levels in declines are pegged at 5,209 and 5,085 points.
Resistance levels on the upside are pegged at 5,420 and 5,506 points.

Some Observations
1.   The Nifty fell below the 38.20% retracement of the entire fall from 4,588-4,629 points and recovered.
2.   Despite the price being above the weekly averages for six weeks, they still continue to be negatively phased.
3.   The elections results proved to be a damn squib as was envisaged at it will be interesting to see whether the Budget turns out to be the same!

Strategy
Even though the market recovered from lower levels the 5,455 and 5,516 points are important resistance levels to watch out for. Unless and until these are taken out the bulls are unlikely to make any headway. With the Railway Budget, the Reserve Bank of India (RBI) policy review and the Union Budget due this week, volatility is expected to be high. However if the above mentioned resistance levels are not taken out, all these events will turn out to be damn squibs. Keep a strict stop loss below 5,295 on longs positions if any. The international markets are likely to fizzle out mid week and hence are unlikely to aid the bullish sentiment.

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

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