A top may take place around mid-week; after which a short-term dip is likely

S&P Nifty close: 5,691.15
Market Trend
 

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

After a gap up opening, the Nifty drifted lower but did not break the SL (stop loss) level of 5,498 mentioned last week. On the last day of the week the Nifty gained 137 points (+2.03%) to finally close the week on significantly higher volumes, indicating strength. The histogram MACD which is above the median level moved higher indicating that the bulls remain in control even though the short-term oscillators have just ventured into overbought territory.
 

The rise was broad-based as all the sectoral indices barring pharma ended in the green. The sectoral indices which outperformed were CNX PSU Bank (+14.66%), CNX Realty (+9.05%), CNX Infra (+6.97%), CNX Finance (+5.17%), CNX Media (+3.84%), CNX PSE (+3.21%) and CNX Service (+3.16%) while the underperformers were CNX IT (-3.33%), CNX Pharma (-2.24%), CNX FMCG (-2.04%) and CNX MNC (-0.31%).

Here are some key levels to watch out for this week

•As long as the S&P Nifty stays above 5,648 points (pivot) the bulls will be in control.

•Support levels in declines are pegged at 5,577 and 5,463 points.

•Resistance levels on the upside are pegged at 5,762 and 5,833 points.

Some Observations

1. The Nifty came very close to hitting the resistance line of the channel pegged at 5,742 (as mentioned last week).
2. The Nifty is now moving within a sharp up sloping channel (in blue), support from which is pegged around 5,380 points, this week.
3. The resistance line of the same channel is pegged around 5,785 points, this week and one has to book profits if the Nifty approaches this level in the coming week.
4. We have closed 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 should be closely watched in the weeks ahead.
6. We have completed 88 weeks from the top of 6338 points (5 November 2010) hence one has to keep a close watch this month end as we head into the 89^th week (Fibo number).

Strategy

The bulls are very much in control even though the oscillators have ventured into overbought territory. What this implies is that one should be very selective from here on and book profits close to the resistance levels mentioned above. Short-term traders should raise their SL to 5,564 points while the positional SL is still far away. Time cycles indicate the likelihood of top taking place around mid-week (or maybe settlement end as this is expiry week) from where at least a short-term dip should take place.
 

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