See-saw battle for short term control continues as bears fail to take out the resistance line

Vidur Pendharkar 06 April 2012

Holding of the recent low of 5,171 points is importance as a decisive close below this will ring alarm bells and the efforts of the last couple of weeks will be in vain. Expect selling pressure from the beginning of the coming week

S&P Nifty close: 5322.90

Market Trend
Short Term: Sideways Medium Term: Sideways Long Term: Down

The Nifty opened the week with an upside gap and rallied exactly into our projected resistance area of 5,372-5,385 points and sold off immediately, thus curtailing the weekly gains to a meagre 27 points (+0.52%). Following the ‘hammer’ last week the Nifty has made a “small body” with a long upper shadow indicating that there is selling pressure at higher levels. It also failed to take out the resistance line (in black) drawn by connecting the recent tops of 5,629 and 5,499 points.

The sectoral indices which outperformed were BSE Consumer Durables (+6.39%), BSE Capital Goods (+3.30%), BSE Power (+3.21%), BSE PSU (+2.07%), BSE Bankex (+1.48%) and BSE Reality (+1.16%) while the gross underperformers were BSE Healthcare (-0.84%), BSE Auto (-0.70%) and BSE Metal (+0.03%). The weekly histogram MACD continued to move down but is still above the median line indicating that the bulls’ hopes are still alive. However the volumes were poor during the recovery due to the short trading week on account of holidays.

Here are some key levels to watch out for this week

As long as the S&P Nifty stays below 5,327 points (pivot) the bulls would be under pressure even though the intermediate trend is sideways.
Support levels in declines are pegged at 5,275 and 5,227 points.
Resistance levels on the upside are pegged at 5,375 and 5,427 points.

However there is strong possibility that the volatility might expand and the extremes of the above mentioned range might be exceeded.

Some Observations
1.    The Nifty closed above the pivot of last week but has formed a “small body with a long upper shadow” which implies that there is supply at higher levels.
2.    Weekly averages have become positively phased and a close below them would result in the selling pressure accentuating.
3.    Unless and until the 5,372-5,385 points range is taken out in close the bears will hold the edge and a break of the recent low of 5,171 points (in close) would set the cats amongst the pigeons.

Strategy
The recent tops of 5,378 and 5,499 have to be taken out if the bulls want to turn the tide in their favour. Holding of the recent low of 5,171 points is importance as a decisive close below this will ring alarm bells and the efforts of the last couple of weeks will be in vain. Expect selling pressure from the beginning of the coming week.

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

Comments