The week ahead promises to be interesting as the bulls fight to protect the 16,000 bastion even as bears seek to press downward. The taut nerves of investors globally will ensure that any small development in Europe or the US will receive undue attention and elicit exaggerated reaction. Throw in the derivative expiry and we have an explosive week on the cards.
The truncated week that has gone by has not helped the Sensex' cause as it made the index miss last Monday's rally in the global markets. It is also rather precariously placed towards the end of the week, hanging on to the 16,000 support. Daily oscillators are extremely oversold. Daily relative strength index is at a level last seen in October 2008! Weekly oscillators are also in the oversold zone indicating that a medium-term bottom could be close at hand.
The Sensex is at the critical support zone around 16,000. As we have been reiterating, 38.2 per cent retracement of the rally from March 2009 low occurs at this level and if the Sensex holds 16,000 in this onslaught, it will mean that the bull-market is intact. Immediate supports below 16,000 on the charts are at 15,650 (trough formed in February 2010) and 15,330 (trough formed in November 2009).
In other words, investors can look forward to support in the zone between 15,300 and 16,000 even if the index dips below 16K. The going will get rocky only beyond 15,330, bringing subsequent Fibonacci retracements at 13,924 and 13,036 in to play. If we extrapolate the down move from 21,108 peak, 1:1 relationship gives us the target at 15,955. This level was almost achieved last week.
The short-term outlook is very wobbly. However, investors can expect some support around the 16,000 level. Bounce from here can take the index to 16,433 that is the ceiling of the gap formed on Friday and then to 16,774. Inability to move above the first resistance will keep the short-term view negative. Immediate targets below 15,987 are 15,771 and 15,650. Close above 17,460 is needed to signal a sustained medium-term recovery.
Nifty (4,845.6)
The Nifty plunged to an intra-week low of 4,796 before ending 227 points lower. The index is currently testing the critical support zone between 4,750 and 4,900. Supports just below are at 4,692 and 4,538, that were the troughs formed in November 2009 and February 2010. It is only if these long-term supports are breached will the next Fibonacci retracement supports at 4,248 or 3,989 come in to play.
Nifty moved past our short-term target at 4,895 on Friday. If the decline continues early next week, it can fall to 4,762 or 4,692. However, a rebound from the current levels will take the Nifty up to 4,950 or 5,050. Reversal from either of these levels will mean that the short-term will stay bumpy. Close above 5,198 or 5,240 is needed to signal a possible medium-term recovery.
For next week of 22-08-2011 to 26-08-2011 which will the derivative expiry, Nifty may trade with more volatile in a range between 5050 on the higher side and 4650 on the lower side. Immediate resistance for Nifty will be 4875 and a break out will take Nifty to 4930-4990-5050 levels, where as 4815 will act as Immediate support and a breach can drag the Nifty to 4760-4705-4650 levels. If Nifty breaks 4890 and closes above 4895, which was the high made on Friday for 2 Days, it will take Nifty to 4950 (previous 52 week low) 4991 (5 DMA) and 5066 (10 DMA) in coming weeks. On the Down side Nifty has closed exactly at its 200 WMA (Weekly Moving Average) of 4844 at 4845.65. Any close below 4844 for 2-3 days will take Nifty to 4770 (150 WMA), 4675 (Feb 2010 Low) and 4540 (Nov 2009 Low).
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